Pearce foundations: Exam 2013 - question 6

[cipherap15]

Question asks Identifty two factors that supports smiths conclusion regarding the Foundations HIGH risk tolerance. One of the answers says
The pearce foundation does NOT have a contractually defined liability stream. It’s 6% annual spending requirement is not a contractual obligation.
I understand that foundations do NOT have contractually defined liability streams. But isn’t the 6% a contractual obligation? I thought foundations have a 6% spending rate requirement that they must abide by.
Thanks,
much appreciated

 

[cipherap15]

Its really a two a part question. The one above. And for foundations they say they have high risk tolerance because they dont have a defined liability stream. When doing endowment questions you can not use this as a reason. Why not? It doesn’t have a defined liability stream does it?>
And again above, doesnt the foundations mandatory spending requirement mean it does have a liability stream?
Confused?
thaks

 

[study killed my]

This is from memory during study last year.
1. All (generally) foundation have an long time horizon. Higher risk tolerance
2. Pensions have defined liability stream (ALM) vs foundation on asset only. The spend rule is a rule (mainly for tax reasons), but if they don’t meet the spend rule there aren’t heading to court.

 

[cipherap15]

Thanks. That makes sense.
But why then do the answers for endowments never include this? With foundations they mention in answers that they have a risk tolerance because they dont have a liability stream.
Why cant’ we use the same logic for endowments when they ask about risk tolerance? Endowments dont have liability streams either do they? Why isn’t that an answer for endowments as well?
Thanks,
much appreciated.