Which statement describes the risk objectives of foundations?

The correct understanding of the risk objectives of foundations recognizes that they typically operate with an indefinite time horizon. This means that foundations are not bound by immediate liabilities that require short-term funding. Instead, they aim to achieve long-term growth in their assets to support their philanthropic missions over time. The absence of defined liabilities allows them to accept higher levels of investment risk in pursuit of greater returns, which aligns with their overall goal of sustaining and increasing their endowment.

Foundations generally maintain a significant portion of their portfolio in equities or other growth-oriented investments, contrasting with organizations that have defined liabilities or short-term funding needs, which necessitate a more conservative investment approach. This ability to take on greater risk reflects their long-term orientation and commitment to ensuring that they can fulfill their obligations in the future, even as market conditions change.

Understanding this context is crucial for grasping how foundations define their risk objectives compared to other organizations with more immediate funding pressures.