Determine the optimal sustainable payout yield for university endowments. This vital tool helps educational institutions balance current spending with future fund growth, ensuring financial longevity and supporting their core missions effectively.
Formula:
Sustainable Payout Yield (%) = Expected Annual Investment Return (%) - Expected Annual Inflation Rate (%) - Annual Operating Costs/Fees (%) - Target Capital Preservation/Growth Rate (%)
Sustainable Annual Payout Amount = Endowment Market Value × (Sustainable Payout Yield / 100)
Where:
- Endowment Market Value (EMV): The current market value of the endowment fund.
- Expected Annual Investment Return (EAR): The anticipated nominal annual return on the endowment's investments.
- Expected Annual Inflation Rate (IR): The anticipated annual inflation rate.
- Annual Operating Costs/Fees (OC): Annual costs or fees associated with managing the endowment, expressed as a percentage of EMV.
- Target Capital Preservation/Growth Rate (CPGR): The desired rate at which the real value of the endowment should grow or be preserved. Set to 0% for pure capital preservation.