The Endowment spending policy, which allocates Endowment earnings to operations, balances the competing objectives of supporting today’s scholars with annual spending distributions while promising to maintain support for generations to come. The spending policy manages the trade-off between these two objectives by using a long term spending rate target combined with a smoothing rule, which adjusts spending in any given year gradually in response to changes in Endowment market value.

Using the metrics of stable operating budget support and purchasing power preservation, the Endowment demonstrated substantial improvement over the past twenty years. As Yale improved diversification by allocating more of the Endowment to the alternative asset classes of absolute return, private equity, and real assets, risks plummeted for both spending and purchasing power degradation.

In 1990, when alternative asset classes accounted for only 15 percent of the Endowment, Yale faced a 40 percent chance of a disruptive spending drop, in which real spending drops by 10 percent over five years, and a 49 percent chance of purchasing power impairment, in which real Endowment values fall by 50 percent over fifty years. By 2000, when absolute return, private equity, and real assets accounted for nearly 60 percent of the Endowment, disruptive spending drop risk fell to 31 percent and purchasing power impairment risk declined to 27 percent.