Association Executive - January/February 2008 - (Page 10)

A New Model: Helping Smaller Not-for-Profits with Their Endowment Management By Jim Ryan and Courtney Moore T oday, there are few, if any not-for-profits that manage their own endowment assets. Professional asset management, whether through mutual funds, separately managed accounts, or partnerships in alternative investments, have been widely used for not-for-profit endowments for a long time. The days when trustees directly bought and sold securities for the endowment have passed, and this is, perhaps, a good thing. Professional asset management may deliver superior returns, inspire confidence among donors, and insulate trustees from charges of financial impropriety. How a not-for-profit obtains a professional asset manager, however, is an important consideration. The Need for a New Model When a not-for-profit’s endowment grows to a certain size—typically around $200-300 million—most will use in-house staff to oversee their 10 ASSOCIAT IO N EX EC U T IV E JANUARY/FEBRUARY 2008 financial management. This dedicated team determines the right mix of assets, retains professional managers, reviews performance, and compiles user-friendly reports for trustees to review. Because there is only one client, this team has the luxury and the mandate to customize an investment portfolio that also incorporates the organization’s mission and philosophy. The staff may hire one or more consulting firms to assist in this work. These consulting firms maintain extensive data on various asset managers to help locate the appropriate manager. They are also available to assist the staff in reviewing performance and conducting asset-liability studies specific to the not-for-profit’s needs. While this model may serve larger not-for-profits well, it often comes with a hefty price. Given the competitive environment for their services, employing a full-time staff of experienced investment professionals is not cheap, and frequently smaller not-for-profits cannot afford these services. What is a Smaller Not-For-Profit to Do? Trustees of all not-for-profits must exercise fiduciary responsibility over the endowment’s assets. Organizations with smaller endowments typically rely on three methods. Most often used are: Inheritance Model: More often than not, the staff and board have inherited investment managers from prior staff and boards. Few trustees know or can remember how the relationship began, how the managers were chosen, or whether other managers were considered. Piggy-Back Model: Some smaller not-for-profits use investment managers they were introduced to by larger organizations with larger pools of money. Often the managers would not have accepted them as a client because of their size but have done so as an

Table of Contents Feed for the Digital Edition of Association Executive - January/February 2008

Association Executive - January/February 2008 Contents From the CEO Good Governance Practices for 501(c)(3) Organizations A New Model: Helping Smaller Not-For-Profits with Their Endowment Management Inside NYSAE Book Beat Too Much of a Good Thing? Enhanced Form 990 Disclosures and Their Impact 7 Myths about Financial Planners An Executive's Guide to Responding to Third-Party Subpoenas Relationship Selling: Maximize Your Talk, Time & Tech to Keep Your Connection Strong Save the Dates Index of Advertisers

Association Executive - January/February 2008

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