Foundations 'spending too much' to sustain value of investments

A professor from the London Business School has found that charity spending rates are higher than the return on their investment

Professor Elroy Dimson
Professor Elroy Dimson
Permanently endowed foundations might be spending too much to maintain the real value of their investments, the Charity Finance Directors’ Group investment conference heard last week.

Elroy Dimson, emeritus professor of finance at London Business School, said data he had collected with two colleagues, based on 111 years of returns from major equity markets, suggested that the real "equity premium" – the amount by which returns on stocks and shares outperform inflation – was between 3 per cent and 3.5 per cent.

"Charity spending rates have tended to fall towards 4 per cent," he said. "But these figures mean that spending rates of 4 per cent are not sustainable."

He said that permanently endowed foundations should consider whether to focus on spending over the long term, or convert to fixed-life funds in order to improve the lives of existing beneficiaries.

"I think there’s an argument that some of the cost of spending on future beneficiaries should be borne by those who are getting rich now," he said.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Already registered?
Sign in
Follow us on:

Latest Jobs

RSS Feed

Third Sector Insight

Sponsored webcasts, surveys and expert reports from Third Sector partners


Expert Hub

Insurance advice from Markel

Charity property: could you be entitled to a huge VAT saving?

Charity property: could you be entitled to a huge VAT saving?

Partner Content: Presented By Markel

When a property is being constructed, VAT is charged at the standard rate. But if you're a charity, health body, educational institution, housing association or finance house, the work may well fall into a category that justifies zero-rating - and you could make a massive saving

Third Sector Logo

Get our bulletins. Read more articles. Join a growing community of Third Sector professionals

Register now