Investment Services

Investment Services

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Pooled Endowment Fund Spending Policy

The Investment Committee is responsible for establishing the yearly spending rate for the PEF. Over the past decade, the spending rate has ranged between 9.24 and 12.65 cents per unit, implying a spending rate of between 3.4% - 5.7%. The spending rate for the 2017/2018 fiscal year is 12.01 cents per unit.

The annual spending rate is based on a hybrid formula.

The policy relates current-year spending to both the current endowment market values and the previous level of spending from endowments. The policy is designed to meet two competing objectives:

  • To release current income to the operating budget in a stable stream, and
  • To protect the value of endowment assets against inflation.

The spending rule attempts to achieve these two objectives by using a long-term spending rate combined with a smoothing rule that adjusts spending gradually to changes in endowment market value. The amount released under the spending rule is based on a 70% weight applied to the previous year's spending adjusted for inflation (subject to a maximum cap of inflation of 2%) and a 30% weight applied to the amount that would have been spent using 4.0% of current endowment market value. Also, an upper limit of 4.5% and a lower limit of 3.5% is imposed on the spending rate. The payout for the 2017/2018 fiscal year is 3.6%.

The spending rule has two implications. First, by incorporating the previous year's spending, the rule eliminates large fluctuations and so enables the university to plan for its operating budget needs. Second, by adjusting spending toward a long-term rate of 4.0% of endowment market values, the rule ensures that spending levels will be sensitive to fluctuating endowment market value levels, providing stability in long-term purchasing power.