What is the primary investment objective of an endowment fund?

The primary investment objective of an endowment fund is to earn returns that exceed inflation while also supporting ongoing distributions for the institution or cause it benefits, such as a university or non-profit organization. Endowment funds are typically designed to provide a steady and predictable stream of income over the long term, which allows the organization to fulfill its mission while preserving the capital base.

By focusing on earning returns that outpace inflation, the fund ensures that its purchasing power is maintained, allowing for sustained support over time. This dual objective of generating returns and enabling distributions is critical, as it reflects the endowment's role in both growing its assets and providing financial support to its beneficiaries.

In contrast, prioritizing short-term gains does not align with the long-term obligations of an endowment fund. Maintaining a principal balance without withdrawals would disregard the essential purpose of the fund to provide ongoing financial support. Investing solely in fixed-income securities would likely limit the potential returns needed to both exceed inflation and achieve the necessary distributions, given the generally lower return profile associated with such investments compared to a diversified portfolio that includes equities and other asset classes.