For an endowment , the risk tolerance is or should be completely driven by the dependency of the institution supported by the endowment . So if the institution depends on the endowment funding for alomst all its cash flow needs , the tolerance should be low .
The return requirement is as you said the compound sum of return , mgt fees and inflation.
However the CFAI text does say in the Time Horizon part of foundations that
“All else equal, investors often assume that a longer time horizon implies a greater ability to bear risk because a longer horizon affords them more time to recoup losses.”
(Institute 423) Institute, CFA. Level III 2012 Volume 2 Behavioral Finance, Individual Investors, and Institutional Investors, 5th Edition. Pearson Learning Solutions. . The meaning is that if they’re going to spend down the grant to zero and then shut down , it wouldn’t matter if they suffer volatility in the asset base. But if their goal is to stick round for quite a few years they have to be conservative and cannot afford to take as much risk. Its all very confusing to my formula cramming brain. However with increasing inflation I suppose the riskiness has to increase to get enough after inflation returns . Still confused about that also