Setting a spending policy a board can actually hold to

Most foundation spending policies are written in calm markets and tested in turbulent ones. The ones that survive share a common trait: they anticipate the moment when following the policy will feel wrong.

The smoothing rule matters more than the headline rate. A trailing twelve-quarter average of market value dampens the reflex to cut grants after a drawdown, which is precisely when grantees need funding most. A five per cent rate applied to a smoothed base behaves very differently from the same rate applied to a spot value.

We also encourage boards to write down what would cause them to deviate, in advance and in specific terms. A policy that lists its own exceptions is far more durable than one that pretends none will arise.

Finally, the investment policy statement and the spending policy should be reviewed together. A spending rate is an asset allocation decision in disguise; setting one without the other guarantees a mismatch that only becomes visible under stress.