Pg 264 - Example 10 - they use the Roy’s safety first ratio as a criteria to pick between portfolios. My impression was that Roy’s safety first was: expected return - minimum acceptable return / standard deviation of expected return.
In this example, the return objective is 6.5% due to 4% spend rate, 2% expected inflation, and .4% management fees.
When calculating the Roy’s safety first ratio, they use the spend rate of 4% instead of the 6.5%. Why? That doesn’t make sense to me unless the endowment doesn’t care about inflation and the mgmt fee?