Endowments

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filbert
Posts: 26
Joined: Thu Mar 09, 2017 9:30 pm

Endowments

Post by filbert »

Anyone on here sit on finance council committee deciding on AA for endowments. In my head it seems like it would be easy to move the companies investments from current high fee environment to something like Vanguard even if we used a robo advisor to rebalance it would save money on fees. The principal cannot be touched and therefore I feel the AA could be fairly aggressive. However, I've never done that before and I'm sure there are things I'm not considering.
bsteiner
Posts: 9290
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Endowments

Post by bsteiner »

I'm on the board of a small (mid-7 figure) foundation. Foundations are required to give away 5% of the value of their assets each year. The board decided on a 60/40 asset allocation, and to implement it with index funds. We rebalance once a year by selling from the side that's more than its desired percentage in order to make grants for that year.
WhyNotUs
Posts: 2616
Joined: Sun Apr 14, 2013 11:38 am

Re: Endowments

Post by WhyNotUs »

I sit on endowment committees for two NPOs with modest quasi-endowments. Yes to VG two-five fund portfolios. Our investment policy does not allow more than 20% in any one fund so a two or three fund strategy would require amendment to the policy. Maybe someday we will change it but not so far.
I own the next hot stock- VTSAX
Logan Roy
Posts: 1891
Joined: Sun May 29, 2022 10:15 am

Re: Endowments

Post by Logan Roy »

filbert wrote: Tue Apr 02, 2024 8:27 am Anyone on here sit on finance council committee deciding on AA for endowments. In my head it seems like it would be easy to move the companies investments from current high fee environment to something like Vanguard even if we used a robo advisor to rebalance it would save money on fees. The principal cannot be touched and therefore I feel the AA could be fairly aggressive. However, I've never done that before and I'm sure there are things I'm not considering.
Not on a committee, but ties to endowment managers.

I strongly push individual investors towards indexing. The reason the endowment model doesn't look like that is because they're in a different position from a typical retail investor. There's typically more of an absolute return mandate, and because these portfolios are built to run for generations, you can expect every black swan event in a 100 year period will play out, and they have to be able to sail through them.

Now if they can do that while matching the returns of something like a 60:40 portfolio (90% of the risk there being market risk – which could be considered precarious for a large institutional fund) then you've done very well. And that's where they see fit to use more active managers and long-term value bets. Otherwise it's much more about risk (especially inflation risk) than squeezing another 0.5% out of the annual return.
alex_686
Posts: 13402
Joined: Mon Feb 09, 2015 1:39 pm

Re: Endowments

Post by alex_686 »

Don't put the cart in front of the horse.

Write up a Investment Policy Statement. What are you goals (such as liquidity needs), market expectations, and risk tolerances.

Why is this important? Many social welfare organizations lean away from equities. During times of economic stress the demand for their services increases while the value of their equity portfolio falls.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
HomeStretch
Posts: 11557
Joined: Thu Dec 27, 2018 2:06 pm

Re: Endowments

Post by HomeStretch »

Are these large Endowments? Restricted or unrestricted?

Is the charitable organization’s Finance Committee willing to take on the liability of self-managing the Endowment (and will the D&O insurer allow it)?

You also need to check the donor agreements to see if there are any restrictions on how the funds are invested and managed.
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