We are often asked if it is possible to evaluate the objective of maintaining the real value of an endowment’s spending over time (in an inflationary environment) and therefore maintaining mission delivery.
In this paper, we show how PFaroe (Risk First’s suite of web-based risk analytical software) can be used to help analyze this objective and help devise asset strategies that optimize mission delivery.
Analysis was completed using PFaroe’s deterministic and stochastic projection capabilities using a model portfolio pursuant to an “endowment model” strategy.
All results herein are run using PFaroe’s in-built Economic Scenario Generator. The user can override this with their own economic prognosis if desired.
Note that the model portfolio was not altered in any way. Altering the model portfolio and associated assumptions can also be done in PFaroe but these complex iterations are beyond the scope of this paper.
This exercise could be done to see if a more optimal portfolio could be created with the stated objective in mind. In reality, there are multiple objectives for an endowment. PFaroe can be used to examine multiple objectives as the CIO seeks to build an optimal portfolio unique to the particular circumstances of their particular endowment or foundation.
To read the whole paper, please click here.