I did a practice Schweser exam and both the foundation and endowment had infinite lives and in the answer sheet Schweser made this general statement: “Endowments generally have less risk tolerance than Foundsations and Foundations tend to be more aggressive because Foundations do not need to grow their assets whereas Endowments need to keep up with inflation.” This makes absolutely no sense to me. If anything, because Foundations (Private, Operating, and Sponsor) have minimum spending requirements, I would suggest that Endowments generally have high risk tolerances because there’s generally no set spending requirement. Thoughts?
Foundations can spend down their principal (although they usually don’t) while Endowments usually strive to maintain purchasing power.
Foundations strive to maintain their purchasing power as well. So not sure why there’s a distinction like this made. Endowments also use a Total Return approach where they can dip into the capital to meet spending requirements.
Foundations strive to maintain their purchasing power but they don’t have a contractual defined liability. If they spend all the money, so be it. Endowments are owned by non profit organizations and the distributions make up a big portion of their operating expenses. So endowments have a lower risk tolerance. Everything else is pretty much the same except for taxes (foundations have to pay taxes on non-business related income, endowments typically pay no taxes at all).
billwest Wrote: ------------------------------------------------------- > Foundations strive to maintain their purchasing > power but they don’t have a contractual defined > liability. If they spend all the money, so be it. > > > Endowments are owned by non profit organizations > and the distributions make up a big portion of > their operating expenses. So endowments have a > lower risk tolerance. Everything else is pretty > much the same except for taxes (foundations have > to pay taxes on non-business related income, > endowments typically pay no taxes at all). endowment also pays taxes on UBI
I don’t believe Endowments have contractualy defined liabilities either do they?