Oxford's spending formula can never pay less than last year
The Oxford Endowment Fund holds 44.6% of its portfolio in private equity and 79% in equity exposure overall, and still hands its 46 investors a cheque they can budget around. The mechanism is the formula: distribute 4.25% of the average of the last 20 quarters' value per unit, capped at a 10% increase and floored at last year's amount in cash. The payment can rise by at most a tenth and cannot fall at all.
Key numbers, and what they mean
20 quarters
The averaging window in its distribution formula. Five years of averaging divides a market shock by roughly five before it ever reaches the spending line.
0% to +10%
The permitted change in the distribution from one year to the next. The cap is what pays for the floor: surplus withheld in strong years funds the unchanged cheque in weak ones.
44.6%
In private equity at the end of 2025, with total equity exposure at 79%. The smoothing rule is what makes a portfolio this illiquid compatible with a predictable annual payment.
103.7%
The rise in distribution per unit since 2009, against inflation of 63.9% over the same period. The fund returned 9.0% a year nominal and 5.9% real against a 5% real objective.
Asset mix, December 2025
Private equity44.6%
Public equity34.4%
Credit and opportunistic8.5%
Cash and short-term bonds6.9%
Property5.5%
Its 2023 report stated that it holds at least the expected value of next year's distribution in sterling short-term bonds. That wording does not appear in the 2024 or 2025 reports.
The read-through
From the report
Takeaway: how to apply it to a portfolio
The policy is to distribute 4.25% of the average of the last 20 quarters' value per unit, capped at a 10% increase and floored at last year's distribution.
Stop tying spending to a year-end balance. Five years of averaging absorbs most of a shock before it reaches the spending line, and a floor stated in cash absorbs the rest. The formula, not the asset mix, is what makes a spending number reliable.
The cap limits the rise to 10% a year while the floor permits no fall at all. Distribution per unit is up 103.7% since 2009 against 63.9% inflation.
The cap is the part people skip, and it is what funds the floor. Withholding surplus in strong years pays for the unchanged cheque in weak ones. A floor with no cap is not smoothing, it is a ratchet that drains capital.
Its 2023 report said it keeps at least the expected value of next year's distribution in sterling short-term bonds, giving effective certainty of the annual payment. Cash and short-term bonds were 6.9% of the fund at the end of 2025, against a £253.4 million distribution.
A smoothing formula is a promise, and pre-funded cash is how you keep it. If next year's payment is already set aside before the year begins, a bad year never generates a forced sale. Size the cash sleeve off the payment, not off a percentage of the portfolio.
The Argus lensOxford can hold 44.6% in private equity because it solved the payment problem first, not because it is relaxed about illiquidity. Whether the private funds behind a book that size actually distribute on schedule is a question the documents answer. That is our work.
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About the source
The Oxford Endowment Fund's 2025 report, published in May 2026, gives the £6.7 billion value, the asset mix at 31 December 2025, the returns since the fund's 2009 inception and the distribution policy quoted in full. The pre-funding of the distribution in short-term bonds is stated in its 2023 report. The fund is managed by Oxford University Endowment Management for the University, 31 of its colleges and 14 other trusts, endowments and foundations.