ENDOWMENT MANAGEMENT: WHAT YOU’RE EXPECTED TO KNOW

Do you ever wonder if the people sitting across the table during your investment committee meeting are conflict-free? Do you know how they are paid and how much? What their true investment credentials are? How they are governed? How you avoid, or extract yourself from, donor or board/adviser conflict of interest scenarios without alienating either party?

Guess what? You cannot be expected to know the answers to these questions offhand, but as a fiduciary you are expected to make informed decisions. In many instances, an endowment is the most precious asset an institution possesses. Yet it is the one area where advisers are chosen based on (perceived) low fees, undisclosed biases from well- intended board members, and without a true comparative process.

Investment advice providers come in all shapes and sizes: banks, insurance companies, broker/dealers, asset managers, and more! Making sense of the jumbled lot that responds to your Request for Proposal (RFP) is a daunting task. How will you know that you have performed an exhaustive and thorough comparison? How do you then weed through reporting and presentations to determine the accuracy of the results? What is the difference between wrap fees and a hard dollar fee? Who is a fiduciary and who is not? How can an “open architecture” manager actually be proprietary? Is custody ever “free”? Are trading costs important? Should your advisor write your investment policy? Is AIMR compliance important?

These are all important questions. Let’s take just one: How do you successfully construct and maintain a qualified and suitable investment committee? Many people assume that appointing accountants, bankers, and financial advisors will assure them of a successfully-managed endowment. However, we disagree. Our experience has shown that having people who are familiar with investments but not necessarily professionals; who are great listeners; who ask a lot of questions; and who make very deliberate decisions are the best investment committee members.

These are personal qualities that a given financial professional might possess—but might not. More worryingly, people who have ties, whether professional or personal, to the investment world introduce a myriad of conflicts of interest that are almost impossible to manage and that ultimately do affect investment decisions.

Forming an effective investment committee, however, is just one piece of the endowment management puzzle. Using the considerable experience of our principles—who have spent time on both sides of the committee table—PASS will construct a process for search, due diligence, selection, negotiation, and ongoing monitoring of your institution’s endowment management committee. We will answer the questions above, and more importantly, we will teach your staff and committee how to implement sound practices and procedures for continued peace of mind of fulfillment of fiduciary responsibility—so that next time you sit down at the table with your investment committee, you no longer have to wonder.