Smoothing Payout in Volatile Financial Times

1. Smoothing Payout in Volatile Financial Times March 14, 2013

2. Our Mission The California Endowment's mission is to expand access to affordable, quality health care for underserved individuals and communities, and to promote fundamental improvements in the health status of all Californians.

3. Spending Considerations • Multi-generational long-term mission • Perpetual endowment: 5% spend • However… • Willing to spend >5% when needs dictate

4. History of Spending Policies 2000 – No Clear Policy – Principled Approach 2007 – Fixed 2011 – Weighted Average

5. 2007 – A Fixed Approach to Spending • Curved Line represents 5% of Corpus • Straight Line represents actual spending plan • Below the Line generate carryovers • Above the Line use carryovers A – Recession ending B – Expansion phase slows C – Growth slows below D - Beginning of recession Source: TCE Presentation to Board San Francisco 11/20/06

8. 2011 – Spending Policy Review • Hired Angeles Advisors • Benchmarked vs Other Foundations • Three Most Common: • Moving Average • Fixed/Banded Inflation • Hybrid/Yale • Monte Carlo Simulation 10 Years

9. Source: Angeles Advisors March 2011

10. Why Historical Average? • Most Common • Easy to Explain/Defend/Understand • Most Downside Protection • Adequate Smoothing of Payout

12. Spending Policy – Related Considerations • Overspend Still Allowed for Special Opportunities • Perpetuity and Spending Policies Revisited Periodically • Best Case/Worst Case Scenario Planning

13. Appendix

14. “Perpetuity – With a Caveat” “Spending Level for a given fiscal year is determined at 5.0%* of the 3-year moving average value of TCE’s non-charitable use assets.” *However, the board affirmed a commitment to overspend this level, even aggressively, should a momentous opportunity to advance our mission arise. Source: From TCE Spending Policy April 2012