The Endowment & Foundation Analyst (EFA) is a policy analysis and financial planning tool for endowments and foundations. It focuses on the key problem most such institutions face: How to satisfy current demands while at the same time providing sufficient growth to maintain the real value of the fund.
EFA shows how the key decisions, asset allocation and spending, will perform over a variety of capital market scenarios. It shows whether the fund will meet its conflicting goals in "best," "most likely" and "worst case" scenarios. EFA performs this in a framework where the key relationship is the real total rate of return on the fund relative to the spending rate.
The software projects the financial status of the endowment for as many as twenty years into the future. The projections are done on either of two bases
In the deterministic mode, one projection is produced using a predetermined scenario for inflation, investment return and yield. In the stochastic mode multiple projections are produced. Each projection incorporates a particular economic scenario and asset allocation. As many as five hundred scenarios (simulation trials) and ten alternative asset allocations can be produced simultaneously. The scenarios are generated from an economic simulator described below.
The following variables are included in the projections:
In the stochastic mode a statistical summary of the data resulting from the multiple scenarios is presented for each variable and each asset allocation. This statistical summary illustrates the range of possible values for each time frame within the horizon.
The software is completely parameterized; every input data item can be changed.
Economic Simulator
In the stochastic mode of projection, the economic simulator forecasts:
It uses Monte Carlo simulation to produce the forecasts. Interrelationships among the variables are captured using multivariate techniques. Inflation forecasts are composed of expectations of future inflation plus surprises. Returns on fixed income securities are derived from simulations of the treasury yield curve. The yield curve projections are based on estimates of future expected interest rates. The yield curve that results is consistent with the "expectations" hypothesis of the term structure, with the addition of liquidity premiums at the user's option. Returns on other investments are derived from inflation rate and government bond return projections. EFA projects the total rates of return plus the breakdown of total return into income and capital gains components.
Spending
Spending policies are based upon any of the following:
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market value of assets
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real rate of return
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income
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predetermined amounts
Target spending can either be based on the current value or a moving average of the selected quantity. The target amount of spending determined by the formula can be overridden by two minimum spending conditions. The first is based upon prior year's spending. The second is based on a minimum percentage of market value.
Grants
The software can be used to demonstrate to potential donors the importance of their support. Formula-based grants or predetermined amounts can be selected.
Supported Platforms
Windows 95/NT
Windows ME
Windows 2000
Windows XP
Training and Support
In-house training
Continuous assistance with reviews of setups and results
Product updates provided electronically
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