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Institutional spending policies: implications for future asset values and spending

Author

Listed:
  • Snorre Lindset

    (Norwegian University of Science and Technology)

  • Egil Matsen

    (Norges Bank)

Abstract

University endowments, sovereign wealth funds, and foundations support spending. In this paper, we analyze how different spending policies affect future asset values and spending opportunities. We show that the covariance between the asset returns and the spending rate implied by the spending policy is important in this regard. Many of the spending policies used in practice aim at smoothing the spending level by letting current spending be a function of both current asset values and earlier spending levels. One feature of these types of spending policies is that the funds can be depleted. Depleted funds cannot support spending.

Suggested Citation

  • Snorre Lindset & Egil Matsen, 2018. "Institutional spending policies: implications for future asset values and spending," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 32(1), pages 53-76, February.
    • Handle: RePEc:kap:fmktpm:v:32:y:2018:i:1:d:10.1007_s11408-018-0304-9
    DOI: 10.1007/s11408-018-0304-9
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    References listed on IDEAS

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    Cited by:

    1. Knut Anton Mork & Haakon Andreas Trønnes & Vegard Skonseng Bjerketvedt, "undated". "Capital preservation and current spending with Sovereign Wealth Funds and Endowment Funds: A simulation study," Working Paper Series 19222, Department of Economics, Norwegian University of Science and Technology.

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    More about this item

    Keywords

    Endowments; Sovereign wealth funds; Endowment spending policies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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