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Securing Your
Organization’s Future: Best
Practices in Nonprofit
Endowment Management
David Goldner, CPA, CVA, CFP®
Introductions
David Goldner, CPA, CVA, CFP®
Managing partner at Gross
Mendelsohn
30 years of experience providing tax,
inv...
Today we’ll cover
1. What an endowment is and why have one
2. Determining the objectives of an endowment
3. Determining an...
Start watching
You can watch this presentation as
a free on-demand webinar
What is an endowment
and why have one?
“A grant to provide continuing
support or maintenance for a
non-profit organization.”
Source: Merriam Webster
Needs of
today
Needs of the
future
5 Reasons to Have an
Endowment
Source: United Methodist Foundation
Source: United Methodist Foundation
5 Reasons to Have an
Endowment
Source: United Methodist Foundation
5 Reasons to Have an
Endowment
Source: United Methodist Foundation
5 Reasons to Have an
Endowment
Source: United Methodist Foundation
5 Reasons to Have an
Endowment
Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment
Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment
2. Set up a payout policy fro...
Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment
2. Set up a payout policy fro...
4. Select managers to implement your allocation
Commonfund’s Principles of
Endowment Management
4. Select managers to implement your allocation
5. Provide for systematic review of risks and monitor costs
Commonfund’s P...
4. Select managers to implement your allocation
5. Provide for systematic review of risks and monitor costs
6. Determine t...
Best Practice #1
Determine the objectives of your endowment
Objectives should be
defined in a written
document called a board
or investment policy
statement
Objectives should be
defined in a written
document called a board
or investment policy
statement
This statement provides
guidance to ensure
compliance
This statement provides
guidance to ensure
compliance and makes
leadership accountable to
specific rules and regulations
Policy statements should
provide direction to the fund
Goals
Objectives
6 Things Your Policy
Statement Should
Address
The role of the
endowment in
supporting the mission
of the organization
1
The role of the
endowment in
fortifying the finances
of the organization
2
How much of the
endowment will be
used to support the
organization’s current
activities
3
How much in gifts
received by the
organization will be
used to fortify the
endowment
4
Overall investment
strategy and asset
allocations
5
Who is responsible for
investment decisions
6
Best Practice #2
Set up a pay out policy from the endowment
Needs of
today
Needs of the
future
Endowment = an objective
The bigger the
current distribution
The smaller the
future distribution
What’s the ideal percentage?
1
2 %
5 %
What’s the ideal percentage?
4 %
What’s the ideal percentage?
Minimum Spending Requirements
The real issue related to
spending is the expected
return on the portfolio
1972
Uniform Management of Institutional Funds Act
Distinguished endowment investment rules from
trust accounting rules
UM...
1972
Uniform Management of Institutional Funds Act
UPMIFA
2006
Adds Prudent to UMIFA
Distinguished endowment investment ru...
Prudent investor rule
A guideline that requires a fiduciary to
invest trust assets as if they were his own
Source: Investo...
7 UPMIFA factors for use in
determining a spending policy
Duration and desire for
preservation of the fund
Purposes of the institution and the
endowment
General economic conditions...
1
2
Duration and desire for
preservation of the fund
Purposes of the institution
and the endowment
General economic condit...
1
2
3
Duration and desire for
preservation of the fund
Purposes of the institution
and the endowment
General economic cond...
4 Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources of...
4
5
Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources ...
Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources of t...
Investment policy of the
organization
Purposes of the institution and the
endowment
General economic conditions
7
Best Practice #3
Determine an optimum asset allocation
UMIFA (1972) and UPMIFA (2006) broadened
prudent investor rules and allowed the
consideration of a greater mix of assets
8% on a government bond
reinvest 3% to keep up with 3% inflation
pay out 5% in support
60%40%
Bonds Stocks
Modern Portfolio Theory
Encourages the use of a number of different asset classes
with different standard deviations of ri...
Modern Portfolio Theory
The result of an analysis of risk and return of potential
investment alternatives will lead to an ...
Modern Portfolio Theory
Asset Class
Historical Mix
Greenwich
Associates - IMF
2000 Study of
Large
Endowments
NACUBO-
Commo...
Important factors to consider when
deciding on an investment mix
Interest rates are at historic
lows, and expected return on
bonds is, at best, minimal.
U.S. and international equities
are generally considered
reasonably valued today.
Alternative investments
provide the key to risk
management and taking
advantage of opportunities.
Best Practice #4
Select a manager to implement your asset allocation
Finding a manager
Follow the guidance
of an independent
consultant
3 Things Your Investment
Consultant Should Be Doing
1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equ...
1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equ...
1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equ...
1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equ...
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
1
Bonds
Domestic equ...
Report on the background economic
conditions and how they impact the
particular strategic recommendations for
the asset al...
Report on the background economic
conditions and how they impact the
particular strategic recommendations for
the asset al...
Case study
A mismanaged endowment fund got
turned around and grew by 20%
Best Practice #5
s
Provide for systematic review of risks, monitor the costs
and determine the forum for oversight
The final and most
important job
Oversight of the asset
allocation
Monitoring the costs of
management
Reviewing manager
selection
Investment Policy Statement
Should include the target asset allocation and
list any restrictions on the various types of
a...
Investment Policy Statement
Includes the mission, goals, asset allocation
and spending objectives for the fund
Investment Policy Statement
Should also include the benchmarks for
determining whether management is
performing as expected
Forming an investment
committee
The committee should meet
quarterly
The committee should challenge
the investment consultant
In conclusion
Managing an endowment fund is one the
most critical tasks for any nonprofit board
In conclusion
Endowment management can be a
daunting responsibility
In conclusion
Board members have big responsibilities
when it comes to how the endowment fund
is to be managed
Contact me
DGoldner@gma-cpa.com
800.899.4623
www.gma-cpa.com
Free whitepaper
A guide to better endowment
fund management
Download now
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Securing Your Organization’s Future: Best Practices in Nonprofit Endowment Management

When it comes to ensuring the future of your nonprofit, an endowment can serve as a vital tool in supporting your organization and its mission. Despite this, many nonprofits – and especially smaller organizations – struggle to build and manage a successful endowment.

This struggle can come from a lack of support by leadership and the board, or just a long-standing – and unproven – belief that endowments only truly benefit organizations with big operating budgets and plenty of resources.

The truth is, any nonprofit, even the smallest organizations, can benefit from an endowment. However, like any good investment, endowments must be properly managed to reach their full potential and maintain consistent growth.

In this presentation, you’ll learn how to:
• Determine the objectives of your endowment
• Set up a payout policy by determining how your endowment will function as a tool to support your organization’s long term plans
• Decide what your investment policy should address
• Strengthen your endowment by utilizing a strong mix of assets by determining optimum asset allocation
• Select the best candidate to manage your endowment through the help of an investment consultant
• Oversee your endowment in the long-term, including the systematic review of risk, monitoring of costs and determining the forum for oversight

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Securing Your Organization’s Future: Best Practices in Nonprofit Endowment Management

  1. 1. Securing Your Organization’s Future: Best Practices in Nonprofit Endowment Management David Goldner, CPA, CVA, CFP®
  2. 2. Introductions David Goldner, CPA, CVA, CFP® Managing partner at Gross Mendelsohn 30 years of experience providing tax, investment management and consulting services
  3. 3. Today we’ll cover 1. What an endowment is and why have one 2. Determining the objectives of an endowment 3. Determining an optimal asset allocation strategy for your endowment 4. Selecting a day to day financial manager for an endowment 5. Reviewing an endowment’s performance and risks
  4. 4. Start watching You can watch this presentation as a free on-demand webinar
  5. 5. What is an endowment and why have one?
  6. 6. “A grant to provide continuing support or maintenance for a non-profit organization.” Source: Merriam Webster
  7. 7. Needs of today Needs of the future
  8. 8. 5 Reasons to Have an Endowment Source: United Methodist Foundation
  9. 9. Source: United Methodist Foundation 5 Reasons to Have an Endowment
  10. 10. Source: United Methodist Foundation 5 Reasons to Have an Endowment
  11. 11. Source: United Methodist Foundation 5 Reasons to Have an Endowment
  12. 12. Source: United Methodist Foundation 5 Reasons to Have an Endowment
  13. 13. Commonfund’s Principles of Endowment Management 1. Determine the objectives of the endowment
  14. 14. Commonfund’s Principles of Endowment Management 1. Determine the objectives of the endowment 2. Set up a payout policy from the endowment
  15. 15. Commonfund’s Principles of Endowment Management 1. Determine the objectives of the endowment 2. Set up a payout policy from the endowment 3. Determine an optimum asset allocation
  16. 16. 4. Select managers to implement your allocation Commonfund’s Principles of Endowment Management
  17. 17. 4. Select managers to implement your allocation 5. Provide for systematic review of risks and monitor costs Commonfund’s Principles of Endowment Management
  18. 18. 4. Select managers to implement your allocation 5. Provide for systematic review of risks and monitor costs 6. Determine the forum for review and oversight Commonfund’s Principles of Endowment Management
  19. 19. Best Practice #1 Determine the objectives of your endowment
  20. 20. Objectives should be defined in a written document called a board or investment policy statement
  21. 21. Objectives should be defined in a written document called a board or investment policy statement
  22. 22. This statement provides guidance to ensure compliance
  23. 23. This statement provides guidance to ensure compliance and makes leadership accountable to specific rules and regulations
  24. 24. Policy statements should provide direction to the fund Goals Objectives
  25. 25. 6 Things Your Policy Statement Should Address
  26. 26. The role of the endowment in supporting the mission of the organization 1
  27. 27. The role of the endowment in fortifying the finances of the organization 2
  28. 28. How much of the endowment will be used to support the organization’s current activities 3
  29. 29. How much in gifts received by the organization will be used to fortify the endowment 4
  30. 30. Overall investment strategy and asset allocations 5
  31. 31. Who is responsible for investment decisions 6
  32. 32. Best Practice #2 Set up a pay out policy from the endowment
  33. 33. Needs of today Needs of the future
  34. 34. Endowment = an objective
  35. 35. The bigger the current distribution
  36. 36. The smaller the future distribution
  37. 37. What’s the ideal percentage? 1 2 %
  38. 38. 5 % What’s the ideal percentage?
  39. 39. 4 % What’s the ideal percentage?
  40. 40. Minimum Spending Requirements
  41. 41. The real issue related to spending is the expected return on the portfolio
  42. 42. 1972 Uniform Management of Institutional Funds Act Distinguished endowment investment rules from trust accounting rules UMIFA
  43. 43. 1972 Uniform Management of Institutional Funds Act UPMIFA 2006 Adds Prudent to UMIFA Distinguished endowment investment rules from trust accounting rules UMIFA
  44. 44. Prudent investor rule A guideline that requires a fiduciary to invest trust assets as if they were his own Source: Investopedia
  45. 45. 7 UPMIFA factors for use in determining a spending policy
  46. 46. Duration and desire for preservation of the fund Purposes of the institution and the endowment General economic conditions 1
  47. 47. 1 2 Duration and desire for preservation of the fund Purposes of the institution and the endowment General economic conditions
  48. 48. 1 2 3 Duration and desire for preservation of the fund Purposes of the institution and the endowment General economic conditions
  49. 49. 4 Effect of inflation or deflation Expected total return from both income and appreciation of the investments Resources of the organization
  50. 50. 4 5 Effect of inflation or deflation Expected total return from both income and appreciation of the investments Resources of the organization
  51. 51. Effect of inflation or deflation Expected total return from both income and appreciation of the investments Resources of the organization 4 5 6
  52. 52. Investment policy of the organization Purposes of the institution and the endowment General economic conditions 7
  53. 53. Best Practice #3 Determine an optimum asset allocation
  54. 54. UMIFA (1972) and UPMIFA (2006) broadened prudent investor rules and allowed the consideration of a greater mix of assets
  55. 55. 8% on a government bond reinvest 3% to keep up with 3% inflation pay out 5% in support
  56. 56. 60%40% Bonds Stocks
  57. 57. Modern Portfolio Theory Encourages the use of a number of different asset classes with different standard deviations of risk
  58. 58. Modern Portfolio Theory The result of an analysis of risk and return of potential investment alternatives will lead to an acceptable mix in the asset allocation
  59. 59. Modern Portfolio Theory Asset Class Historical Mix Greenwich Associates - IMF 2000 Study of Large Endowments NACUBO- Commonfund Study of Institutions Equal Weighted Gross Mendelsohn’s Current Recommendation Cash 5.0% 2.5% 5.0% 5.0% Bonds 30.0% 20.0% 21.0% 0.0% US Equities 40.0% 50.0% 30.0% 40.0% International Equities 15.0% 15.0% 16.0% 20.0% Alternative, Real Estate & Total Return Managers 10.0% 12.5% 28.0% 35.0% Total Mix 100.0% 100.0% 100.0% 100%
  60. 60. Important factors to consider when deciding on an investment mix
  61. 61. Interest rates are at historic lows, and expected return on bonds is, at best, minimal.
  62. 62. U.S. and international equities are generally considered reasonably valued today.
  63. 63. Alternative investments provide the key to risk management and taking advantage of opportunities.
  64. 64. Best Practice #4 Select a manager to implement your asset allocation
  65. 65. Finding a manager
  66. 66. Follow the guidance of an independent consultant
  67. 67. 3 Things Your Investment Consultant Should Be Doing
  68. 68. 1 Within each area of the asset allocation policy, provide recommendations for the specific allocation: Bonds Domestic equities International equity investments Alternate investment areas
  69. 69. 1 Within each area of the asset allocation policy, provide recommendations for the specific allocation: Bonds Domestic equities International equity investments Alternate investment areas
  70. 70. 1 Within each area of the asset allocation policy, provide recommendations for the specific allocation: Bonds Domestic equities International equity investments Alternate investment areas
  71. 71. 1 Within each area of the asset allocation policy, provide recommendations for the specific allocation: Bonds Domestic equities International equity investments Alternate investment areas
  72. 72. Within each area of the asset allocation policy, provide recommendations for the specific allocation: 1 Bonds Domestic equities International equity investments Alternate investment areas
  73. 73. Report on the background economic conditions and how they impact the particular strategic recommendations for the asset allocation 2
  74. 74. Report on the background economic conditions and how they impact the particular strategic recommendations for the asset allocation 2 Report on the returns of the investment managers and make recommendations for changes and new areas of investment 3
  75. 75. Case study A mismanaged endowment fund got turned around and grew by 20%
  76. 76. Best Practice #5 s Provide for systematic review of risks, monitor the costs and determine the forum for oversight
  77. 77. The final and most important job
  78. 78. Oversight of the asset allocation Monitoring the costs of management Reviewing manager selection
  79. 79. Investment Policy Statement Should include the target asset allocation and list any restrictions on the various types of assets that could be invested in
  80. 80. Investment Policy Statement Includes the mission, goals, asset allocation and spending objectives for the fund
  81. 81. Investment Policy Statement Should also include the benchmarks for determining whether management is performing as expected
  82. 82. Forming an investment committee
  83. 83. The committee should meet quarterly
  84. 84. The committee should challenge the investment consultant
  85. 85. In conclusion Managing an endowment fund is one the most critical tasks for any nonprofit board
  86. 86. In conclusion Endowment management can be a daunting responsibility
  87. 87. In conclusion Board members have big responsibilities when it comes to how the endowment fund is to be managed
  88. 88. Contact me DGoldner@gma-cpa.com 800.899.4623 www.gma-cpa.com
  89. 89. Free whitepaper A guide to better endowment fund management Download now

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