Non-profit endowment question

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RNJ
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Non-profit endowment question

Post by RNJ »

I sit on the board of a non-profit, and am about to join the investment committee. We are transitioning away from a longstanding relationship with a very traditional, stock- and bond-picking manager. There are a number of philosophical issues to work out, and I'm not sure I can get "there" from "here", but I was wondering if an ultra-simple,diversified, transparent, liquid and cheap LifeStrategy fund would be a reasonable choice as a stand-alone holding (yes, they take institutional money).

I'd be grateful for any thoughts or input.

And thanks to the Bogleheads who were helpful with the drafting of an IPS for this organization. :beer
Last edited by RNJ on Tue Mar 25, 2014 11:27 am, edited 1 time in total.
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ogd
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Re: Non-profit endowment: VG LifeStrategy?

Post by ogd »

I think this would be perfect. You don't pay investment taxes right? If I was fully tax advantaged this would probably be my only fund, and it's definitely my first recommendation for anyone that has to ask.

The plus side for a possibly hostile board vs separate funds is you can claim this is "the view on long-term investment strategy from the biggest and most trusted provider", i.e. that it's a manager of sorts and not just you picking fund proportions.
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Re: Non-profit endowment: VG LifeStrategy?

Post by z3r0c00l »

Absolutely a good choice. However, good luck convincing the types of people you find on these boards. They are typically of the sort who know so much about finance that an index investment is an insult to them and unable to satisfy their need for complex solutions to simple problems. (Yes I say this from experience.)
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joe8d
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Re: Non-profit endowment: VG LifeStrategy?

Post by joe8d »

:thumbsup Excellent choice.
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JDDS
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Re: Non-profit endowment: VG LifeStrategy?

Post by JDDS »

RNJ wrote:I sit on the board of a non-profit, and am about to join the investment committee. We are transitioning away from a longstanding relationship with a very traditional, stock- and bond-picking manager. There are a number of philosophical issues to work out, and I'm not sure I can get "there" from "here", but I was wondering if an ultra-simple,diversified, transparent, liquid and cheap LifeStrategy fund would be a reasonable choice as a stand-alone holding (yes, they take institutional money).

I'd be grateful for any thoughts or input.

And thanks to the Bogleheads who were helpful with the drafting of an IPS for this organization. :beer
You saved me from looking up whether a life strategy fund would work for a nonprofit. I found out today we might be getting a small endowment, and I abstractly wondered if a Vanguard life strategy was possible. I say abstractly, because I won't have any say on where the money goes.
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Re: Non-profit endowment: VG LifeStrategy?

Post by Zabar »

z3r0c00l wrote:Absolutely a good choice. However, good luck convincing the types of people you find on these boards. They are typically of the sort who know so much about finance that an index investment is an insult to them and unable to satisfy their need for complex solutions to simple problems. (Yes I say this from experience.)
I used to be the president of a nonprofit that had a $700-million endowment that was invested under the direction of the board. There were easily a half-dozen layers of outside financial and investment advisors taking "haircuts" from the various funds-of-funds, hedge funds, REITs and other things they put the endowment into. The board members clearly relished managing the money in this way.

Soon after I arrived, I asked our CFO/Chief Investment Officer if anyone had ever done the calculation of how the endowment would have performed over the previous decade if it had been in a simple 60/40 mix of low-cost index funds, and we hadn't had to pay all of those investment and management fees. He smiled knowingly and replied, "Oh, we would never do that calculation." :oops:
WhyNotUs
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Re: Non-profit endowment: VG LifeStrategy?

Post by WhyNotUs »

Our investment committee receives a report with a comparison to 60/40 Total SM/Total Bond every quarter. That was one of my contributions to the dialogue. It may take a little time before our investment committee decides to change direction.

The cost advantage for an endowment over an individual investor is that transactions do not create a taxable event. That tax advantage and a history of making some good/lucky decisions about AA have us slightly ahead of the 60/40 net of fees over 5 years that I have been involved. For me, the difference is too small to be worth the time spent and the risk of return to mean but others are still interested in trying to leverage the tax advantage of active investment for an endowment. Some day when I have the time, I will study some small cap funds that churn stocks to see if that would make any sense.

Over some period of time, I think the committee will discover the advantage of the passive approach. Sounds like your group is there. The hardest thing about the meetings for me is hearing the advice from the layers of investment committees. It is like reading a month old copy of Barrons.
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RNJ
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Re: Non-profit endowment: VG LifeStrategy?

Post by RNJ »

Thanks all for your responses. After hearing about interviewing advisors, their fees, their "volunteering" to help the organization write an IPS and and develop an investment philosophy, I was struck by how obvious and simple a solution this approach could be. Almost too good to be true.

Again - thank you!
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RNJ
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Endowment update

Post by RNJ »

[Thread merged with the original, see below. --admin LadyGeek]

Following up on an earlier thread (http://www.bogleheads.org/forum/viewtop ... +endowment), as well as Rick Ferri's post from earlier today (http://www.bogleheads.org/forum/viewtop ... 0&t=139715), I wanted to provide an update.

I'm a recent addition to the finance committee of a nonprofit that has been in the process making a decision about the management of the organization's endowment. The committee had been prepared to retain an advisor with "all-in" fees well in excess of 1%. In discussions with the committee, using data from Rick's paper (http://www.rickferri.com/WhitePaper.pdf), as well as arguments and data derived from other notables (Mssrs Bogle, Swedroe, Swensen and Dr. Bernstein, among others), the committee elected to change course and move to a passive, indexed strategy, and to use Vanguard CFPs for guidance on the selection of appropriate "all-in-one", balanced funds (costs ~.18%).

The organization, which does a great deal of charitable work and community service, will save a minimum of $100,000 in fees over the next 10 years.

Incidentally, in our consultation with Vanguard, we found their CFP (our organization does not meet the minimum for VG's institutional management) to be very knowledgable, professional, and straightforward. He answered some tough questions from skeptical committee members. It was that meeting via web conference that helped the committee clear the final hurdle.

A heartfelt thanks to the Bogleheads who chimed in and provided encouragement on my earlier post, as well as to Rick, Larry, Dr. B. and Mr. Bogle.

And congratulations to Rick on his work and award. Well done!
Last edited by RNJ on Fri May 23, 2014 1:10 pm, edited 1 time in total.
steve_14
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Re: Endowment update

Post by steve_14 »

Great news. I'm continually amazed by the breath of good advice these Vanguard advisors give. I suspect most typical advisors are sales-types, great at selling, but without much interest in the technical aspects of investing. I know very few people who have both skills.
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Re: Non-profit endowment question

Post by LadyGeek »

FYI - I merged the OP's thread with the original. The idea is that the members who've contributed can see the results of their efforts.

Also, this thread is now in the Personal Finance (Not Investing) forum (endowment).
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