After the IPS is set, the board's next task is setting a spending policy and sharing it with all parties involved. The spending policy sets the guidelines for spending each year and also provides guidance for committee members to be more flexible in certain years when necessary. For example, the board may determine that a specific endowment should spend between 4% and 6% of the total assets. However, such distributions may not be appropriate during difficult market times, so the flexibility to scale back distributions may be needed.

UPMIFA provided seven factors for board members to take into account when determining year-to-year spending:
1. The duration and preservation of the endowment fund.
2. The purposes of the institution and the endowment fund.
3. General economic conditions.
4. The possible effect of inflation or deflation.
5. The expected total return from income and appreciation of investments.
6. Other resources of the institution.
7. The investment policy of the institution.

This is an important departure from previous law, which stated that underwater endowments (that is, endowments with a total value less than the original gift) weren't allowed to make distributions. During the most recent financial crisis (prior to UPMIFA's widespread adoption), many endowments, especially recently established ones, had the necessary assets to fund programs, but were prohibited from spending them because they were underwater.

For example, at the beginning of 2008, the North Carolina Symphony's endowment was worth $9.3 million, well above its historic dollar value of $7.25 million and enough to allow the organization to make a $600,000 withdrawal to cover salaries and concerts. By March 2009, the fund had dropped to $6.9 million, meaning the symphony was restricted from touching the endowment and needed to find other ways to make up the revenue. (North Carolina has since adopted UPMIFA.)

It is important to know that spending policy and asset allocation are dependent on each other and cannot be determined in isolation. A perpetual endowment with an expected investment return of 3% per year can't be expected to distribute 7% each year. To achieve intergenerational equity, the portfolio must take enough risk to sustain spending while not taking on so much risk that the corpus is unduly jeopardized.

To strike this optimal balance of allocation and spending, advisors should conduct an asset allocation and spending policy analysis. Because each institutional fund is unique, a properly run study can show the impact of spending changes, smoothing formulas, inflation and other assumptions.

Once the IPS, spending policy and asset allocation are finalized, the investments of the funds can be implemented according to the board-approved documents of the organization and the investment guidelines of UPMIFA. UPMIFA incorporates several key concepts from the Uniform Prudent Investor Act and Modern Portfolio Theory (MPT), including the concept that investment decisions should be made in the context of the portfolio as a whole (a total-return approach) and should take into account the funds' risk and return objectives.

Several leading financial economists, three of whom received the 1990 Nobel prize for their contributions, conducted research resulting in the formulation of MPT. One strategy that strongly follows the spirit of UPMIFA and MPT is passive investing. By broadly diversifying equities through low-cost, passively managed mutual funds, managers fulfill their obligation to minimize costs, provide transparency of underlying assets and deliver a prudent investment strategy backed by academic and real-world evidence.

Even David Swensen, chief investment officer of Yale University's $19.4 billion endowment, would agree that for most institutions, passive management is the right approach. A recent article from Financial Advisor magazine reported David Swensen addressing an audience at a conference:

Unless an investor has access to "incredibly high-qualified professionals," they "should be 100% passive-that includes almost all individual investors and most institutional investors," he said.