Spending Policy
A spending policy defines how much capital the family can withdraw annually without compromising long-term objectives.
Definition
Definition A spending policy sets rules for withdrawals to fund lifestyle, philanthropy, taxes, and family needs. It can be a fixed percentage, a budget-based approach, or a rule tied to portfolio performance. Spending policy matters because it directly constrains how much illiquidity the family can take. Allocator Context Family offices often have more flexible spending than endowments, but real constraints exist—especially with taxes, real estate commitments, business obligations, and philanthropic pledges. A mismatch between spending needs and illiquid allocations creates forced selling risk or missed opportunities. Decision Authority Usually set at the principal level, sometimes with CFO input. It directly impacts portfolio construction decisions. Why It Matters for Fundraising Spending policy determines whether a family can commit to a 10–12 year fund. Managers who understand cash needs can propose realistic ticket size and pacing. Key Takeaways Spending rules shape liquidity capacity Illiquidity is constrained by real cash needs Spending policy affects commitment sizing and pacing Good fundraising respects cash planning reality