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Smoothing Payout in Volatile Financial Times
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March 14, 2013
Our Mission
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The California Endowment's mission is to expand access to affordable, quality health care for underserved individuals and communities, and to promote fundamental improvements in the health status of all Californians.
Spending Considerations
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• Multi-generational long-term mission• Perpetual endowment: 5% spend
However…• Willing to spend >5% when needs dictate
History of Spending Policies
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2000 – No Clear Policy – Principled Approach
2007 – Fixed
2011 – Weighted Average
TIME
SPENDING
A2 D A B C
• Curved Line represents 5% of Corpus• Straight Line represents actual spending plan• Below the Line generate carryovers• Above the Line use carryovers
A – Recession ending
B – Expansion phase slows
C – Growth slows below
D - Beginning of recession
2007 – A Fixed Approach to Spending
Source: TCE Presentation to Board San Francisco 11/20/06
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2011 – Spending Policy Review
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• Hired Angeles Advisors • Benchmarked vs Other Foundations• Three Most Common:• Moving Average• Fixed/Banded Inflation• Hybrid/Yale
• Monte Carlo Simulation 10 Years
9Source: Angeles Advisors March 2011
Why Historical Average?
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• Most Common
• Easy to Explain/Defend/Understand
• Most Downside Protection
• Adequate Smoothing of Payout
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Spending Policy – Related Considerations
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• Overspend Still Allowed for Special Opportunities
• Perpetuity and Spending Policies Revisited Periodically
• Best Case/Worst Case Scenario Planning
Appendix
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“Perpetuity – With a Caveat”
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“Spending Level for a given fiscal year is determined at 5.0%* of the 3-year moving average value of TCE’s non-charitable use assets.”*However, the board affirmed a commitment to overspend this level, even aggressively, should a momentous opportunity to advance our mission arise.
Source: From TCE Spending Policy April 2012