Association Executive - January/February 2008 - (Page 11)

Prior to turning assets over to a manager, the board should write an investment policy that clearly delineates the time frame, risk parameters and any restrictions of the assets. accommodation to their larger client. In this piggy-back model, the smaller not-for-profit feels privileged to have received such a special deal. Often the two groups share a common trustee and are in the same field. Old Boy Network Model: Probably the most common model for not-for-profits with endowments less than $200 million is to use a variation of the old boy network. This typically entails one or more trustees introducing professional money managers they have used in other scenarios. Most often the trustee who introduced the manager sits on the investment committee of the board and serves as the primary liaison with the manager. These three models defined above can result in retention of good managers delivering good performance. There are other considerations, however, that make these models insufficient. Employing good managers is only part of the trustees’ job of being a good steward. Prior to turning assets over to a manager, the board should write an investment policy that clearly delineates the time frame, risk parameters and any restrictions of the assets. An asset allocation model should be created to determine the appropriate percentage of assets to be invested in each broad asset class (stocks, bonds and cash) and sub-asset classes (domestic versus international or value versus growth). Performance reports should be conducted by an independent professional to monitor manager performance. When one of the three models previously described is in use, these other critical elements are often unknown, ignored or left to the not-for-profit’s staff to handle. This greatly increases the risk that the board is not meeting its fiduciary responsibility. The Case for a Financial Advisor As an alternative to employing full-time in-house staff to manage the endowment, not-for-profits can outsource this job by hiring a financial advisor. The role of this investment professional is not to be a manager himself by picking stocks and bonds. Rather, his job is to guide the trustees in the ongoing four step process of: • Writing an investment policy; • Developing proper asset allocation modeling; • Assisting in the selection of investment managers; and • Conducting regular performance reviews. There are several reasons why these jobs are necessary and why an advisor can deliver the best service at the best price. Investment Policy: Many, if not most not-for-profits do not have a written investment policy, and those that do have only rarely updated them. This written statement, which can be as short as a few pages in length, sets important parameters. The key questions it can help answer are as follows: • Is growth of the endowment more important than generation of income? • What percentage of the endowment will be siphoned off each year to augment the annual budget? • Will any asset classes be prohibited? • Will the securities of any industry or company be prohibited? • Who is to interface with the investment professionals—the trustees or the staff, or both? Drafting a policy that answers these questions enables trustees to determine whether the endowment is meeting its mandate. An advisor who is conversant with all these issues can guide the trustees when they draft this policy. Asset Allocation Modeling: The return of any portfolio is determined far more by the asset mix than by security selection. Proper asset allocation—a balance of stocks, bonds and cash—is an important consideration and will also work to reflect the not-for-profit’s continued on page 12 JANUARY/FEBRUARY 2008 AS SOC I A TI ON E X E C U TI V E 11

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

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.