This document discusses best practices for nonprofit endowment management. It recommends that organizations:
1) Determine the objectives of the endowment and set a payout policy in writing.
2) Determine an optimal asset allocation strategy based on modern portfolio theory and current economic conditions.
3) Select investment managers to implement the allocation and monitor their performance.
4) Provide oversight of the endowment through systematic review of risks, costs, and manager performance by an investment committee.
2. Introductions
David Goldner, CPA, CVA, CFP®
Managing partner at Gross
Mendelsohn
30 years of experience providing tax,
investment management and
consulting services
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
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. 4. Select managers to implement your allocation
Commonfund’s Principles of
Endowment Management
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. 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
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. 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%
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. 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. 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. 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. 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. Report on the background economic
conditions and how they impact the
particular strategic recommendations for
the asset allocation
2
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
78. Oversight of the asset
allocation
Monitoring the costs of
management
Reviewing manager
selection
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