Spending Policies of Italian Banking Foundations

Italian banking foundations are important institutional investors and not-forprofit institutions in Italy. Foundations finance their activities with the returns they get by investing their endowments on the financial markets. The financial management of foundations has to meet two conflicting aims: maintaining a consistent and sufficient spending level in the short run and preserving the real value of the endowment fund in the long run. During the financial crisis, the tension between these aims has strongly emerged. This paper is about the results of an analysis of the spending decisions of ten main foundations, from 2004 to 2016, based on balance sheet and market value data. We propose an error-component model that allows to evaluate the relative importance of spending stability versus preserving the endowment value. Our estimates reveal that, on average, foundations followed stable spending policies across the financial crises, as they did not change their long-term rate of consumption of assets but gradually started to smooth spending over the short term. Because their granting activity sharply declined from 2008 to 2012, the joint effect of these decisions was to persistently reduce spending until 2016. This conservative stance, if carried over beyond the short-term, may violate intergenerational neutrality.