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Hybrid Spending Policy
Definition
The hybrid spending policy computes each year's distribution as a weighted average of two components: (1) last year's spending grown by CPI inflation, anchoring distributions to a stable baseline; and (2) a target spending rate applied to current market value, providing responsiveness to portfolio performance. The weighting factor — commonly 70/30 (CPI/market) in the Yale tradition, 80/20 for maximum smoothing, or 50/50 for equal balance — determines where the policy falls on the stability-versus-responsiveness spectrum. This structure reduces the frequency and severity of spending cuts during downturns relative to both simple market value and rolling average rules.
In the Context of Endowment Management
Increasingly adopted by foundations that need distribution stability for mission-critical grantmaking but want their spending to reflect portfolio performance rather than fully smoothing it away. Hybrid policies with a 70/30 weighting have been shown in Commonfund research to meaningfully reduce negative spend years compared to rolling average rules, while maintaining comparable long-term purchasing power preservation.