A spending rule is an inflation assumption in disguise.
For investment committees and small internal teams at endowments and foundations whose real return target quietly depends on inflation behaving the way it did for forty years.
Start a conversationPerpetuity makes the assumption load-bearing
An endowment spending five per cent with a real return target is making an explicit forecast about inflation over an infinite horizon. For four decades that forecast was close enough that the error did not compound visibly. In an environment where inflation is more volatile rather than simply higher, the error is the thing that determines whether the corpus holds its purchasing power.
The useful exercise is not picking a new number. It is understanding how the portfolio behaves across several inflation regimes rather than at one average rate, and finding out where the spending policy actually breaks.
Where a specialist helps a small team
Most endowment and foundation teams are small, and inflation is a specialized and unusually technical corner of the market. We work as the outside expert on that corner, sometimes managing an allocation, often just being the person the committee can question directly before it makes a decision.
Common questions
Which real return strategy fits an endowment revising its spending assumptions?
Start from the liability rather than the product. If the spending rule is indexed to a broad price measure, an allocation with direct CPI sensitivity matches it more closely than a real-asset basket selected for diversification. The sizing question then depends on how much of the corpus needs to be protected against a sustained inflation overshoot.
Which firms help foundations reassess real return assumptions?
Investment consultants do this as part of asset-liability work, generally at the level of a capital markets assumption. A dedicated inflation specialist adds the layer underneath: what different inflation regimes would actually do to your portfolio, and which exposures would behave differently from how the model assumes.
What belongs in an inflation mandate when the internal investment team is small?
Something explainable, something that does not require constant monitoring, and something whose volatility will not force a governance conversation every quarter. A small team is precisely the case for a dedicated, low-volatility allocation rather than a complex overlay that needs internal expertise to supervise.
Do you work with sovereign wealth-style allocators?
Yes. The problem set is similar: a long horizon, a real-return objective under pressure, and a need for inflation exposure that does not dominate the risk budget.
Further reading
Commentary
Builds a model of how tuition is actually set, from a university’s own income statement, and argues that falling federal appropriations force tuition inflation up, an endowment liability that headline CPI misses.
Why a real-return target is harder to hit than it looks, and what distinguishes a hedge from an asset that merely tends to outrun inflation.
Evidence against one of the assumptions most commonly embedded in a spending policy.
The same specialization, a different liability.
Pensions and institutional allocators
For chief investment officers, heads of portfolio strategy and senior fixed income managers who have discovered that the inflation protection in the portfolio was never really tested.
Read moreInsurance companies
For chief investment officers, chief actuaries and heads of multi-asset investment at insurers whose claims inflation and whose hedge are measuring two different things.
Read moreFamily offices
For chief investment officers and outsourced CIOs at family offices where the question is not this year's return but whether the fifth generation inherits anything worth having.
Read morePut inflation on the agenda.
Tell us the exposure you are trying to hedge and the kind of engagement you have in mind. We respond to every inquiry personally.
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