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Banded Inflation Spending Policy
Definition
The banded inflation spending policy starts with last year's distribution grown by CPI inflation, then applies guardrails: a floor (e.g., not below 3.5% of current market value) and a ceiling (e.g., not above 6.5% of current market value). If the CPI-grown distribution falls within the bands, it is used as-is. If it falls below the floor, the floor applies; if it exceeds the ceiling, the ceiling constrains it. This approach combines the stability of CPI-linked growth with the safety of market-value-linked guardrails that prevent spending from drifting too far from the portfolio's capacity.
In the Context of Endowment Management
Less common than rolling average or hybrid rules but appealing to foundations that prioritize grantmaking predictability while acknowledging the need for market-value discipline at extremes. The band parameters (typically 3.5-6.5% of market value) must be calibrated to the specific portfolio and spending objectives.