Reading Flash Cards
Endowments
perrmanent pools of capital owned by institutions such as colleges, universities, hospitals, museums, and religious institutions
Corpus
the nominal value of the initial gift
Operating foundations
the income generated by the endowment is used to fund the operations of the charitable organization
Community foundations
based in a specific geographical area, concentrating the charitable giving of a regions residents. The gifts and investment returns received by the community foundation are distributed in the form of grants to other charities in the community
Corporate foundations
sponsored by corporations and their employees. Similar distribution to community foundations.
Independent foundations
funded by an individual or family
Intergenerational equity
balancing the need for spending on the current generation of beneficiaries with the goal of maintaining a perpetual pool of assets. 50% = value of maintaining inflation adjusted value in perpetuity. 50
Foundation Spending Limits
Us law requires foundations to spend 5% per year on expenses and charitable activities
Endowment Model
aggressive return targets as well as the perpetual life of endowments has led to an aggressive asset allocation (which often incudes substantial alternative investments).
Return Attribution
contributions from strategic asset allocation + security selection + market timing/allocation
strategic asset allocation return
multiplying weightd by benchmark returns to each asset class
Tail risk
a large drawdown in portfolio value during times of increased systemic risk
Real Assets
include inflation linked bnds, both direct and private equity fund investments in mining, oil and gas, timber, farmland and infrastructure. Ideally a real-asset portfolio would earn long term returns smilair to equity markets, with yields similar to fixed
Inflation beta
a positive inflation beta represents an inflation hedge.
Pension Plans (pension schemes or superannuation plans)
manage assets that are used t provide workers with a low of income during their retirement years
Mortality risk
the age at which someone dies
Longetivity risk
the risk that an individual lives longer than anticipated
Defined Benefit (DB) Pension Plans
a type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending directly on individual investment returns.
Retirement Income Replacement ratio
the pension benefit as a portion of final salary
Non-Portable Benefits
benefits earned at one employer do not continue to accrue at another employer
Accumulated Benefit Obligation
the present value of the amount of benefits currently accumulated by workers and retirees
Projected benefit obligation
the present value of the amount of benefits assumed to be paid to all future retirees of the firm
Funded status (pension plan)
the amount of the plan’s current assets compared to its projected benefit obligation (PBO)
Surplus of a pension plan
the amount of assets in excess of the projected benefit obligation (PBO)