IPS for institutions

I am going over notes provided by hala_madrid and have a few questions: 1. Required return: for foundations = (1+spending)x(1+inflation)x(1+fees)-1 for endowments: spending rate + inflation + fees I have seen this formula both ways in the curriculum. what is the right way and why the discrepancy? 2. Tax concerns for foundations: = tax on investment income = 2% (1% if spending = 5% + 1% of net investment income). Is net investment income only dividends and interest? if so 1% of income on say 5% income = 5bps? this see small 3. Endowment - legal and regulatory (or should this be unique) = “respect restrictions imposed by the donor”. Say you manage a $1b endowment and some donor gives you 10m but says must be socially responsible (no china, venezula, tobacco, alcohol or defense stocks). you outsource most of your mngt to hedge fund and other mngrs. how do you handle this? do you segregate the donors contribution so that it is permanently invested SRI? if you have say 3% in china, do you just increase the allocation from other people to maintain this because he makes you underweight those areas? Is this restriction honored for perpetuity?

  1. Both works, I would go with the first one. 2. Typically, taxes are not a concern foundations as long as they meet the spending requirements 3. Yes, I would say the restrictions imposed on the donations have to be complied with. I would say, if necessary using a segregated approach.