This document discusses best practices for nonprofit endowment management. It recommends that organizations: 1) Determine the objectives of the endowment and set a payout policy in writing. 2) Determine an optimal asset allocation strategy based on modern portfolio theory and current economic conditions. 3) Select investment managers to implement the allocation and monitor their performance. 4) Provide oversight of the endowment through systematic review of risks, costs, and manager performance by an investment committee.

1. Securing Your
Organization’s Future: Best
Practices in Nonprofit
Endowment Management
David Goldner, CPA, CVA, CFP®

2. Introductions
David Goldner, CPA, CVA, CFP®
Managing partner at Gross
Mendelsohn
30 years of experience providing tax,
investment management and
consulting services

3. Today we’ll cover
1. What an endowment is and why have one
2. Determining the objectives of an endowment
3. Determining an optimal asset allocation strategy for
your endowment
4. Selecting a day to day financial manager for an
endowment
5. Reviewing an endowment’s performance and risks

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5. What is an endowment
and why have one?

6. “A grant to provide continuing
support or maintenance for a
non-profit organization.”
Source: Merriam Webster

7. Needs of
today
Needs of the
future

8. 5 Reasons to Have an
Endowment
Source: United Methodist Foundation

9. Source: United Methodist Foundation
5 Reasons to Have an
Endowment

10. Source: United Methodist Foundation
5 Reasons to Have an
Endowment

11. Source: United Methodist Foundation
5 Reasons to Have an
Endowment

12. Source: United Methodist Foundation
5 Reasons to Have an
Endowment

13. Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment

14. Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment
2. Set up a payout policy from the endowment

15. Commonfund’s Principles of
Endowment Management
1. Determine the objectives of the endowment
2. Set up a payout policy from the endowment
3. Determine an optimum asset allocation

16. 4. Select managers to implement your allocation
Commonfund’s Principles of
Endowment Management

17. 4. Select managers to implement your allocation
5. Provide for systematic review of risks and monitor costs
Commonfund’s Principles of
Endowment Management

18. 4. Select managers to implement your allocation
5. Provide for systematic review of risks and monitor costs
6. Determine the forum for review and oversight
Commonfund’s Principles of
Endowment Management

19. Best Practice #1
Determine the objectives of your endowment

20. Objectives should be
defined in a written
document called a board
or investment policy
statement

21. Objectives should be
defined in a written
document called a board
or investment policy
statement

22. This statement provides
guidance to ensure
compliance

23. This statement provides
guidance to ensure
compliance and makes
leadership accountable to
specific rules and regulations

24. Policy statements should
provide direction to the fund
Goals
Objectives

25. 6 Things Your Policy
Statement Should
Address

26. The role of the
endowment in
supporting the mission
of the organization
1

27. The role of the
endowment in
fortifying the finances
of the organization
2

28. How much of the
endowment will be
used to support the
organization’s current
activities
3

29. How much in gifts
received by the
organization will be
used to fortify the
endowment
4

30. Overall investment
strategy and asset
allocations
5

31. Who is responsible for
investment decisions
6

32. Best Practice #2
Set up a pay out policy from the endowment

33. Needs of
today
Needs of the
future

34. Endowment = an objective

35. The bigger the
current distribution

36. The smaller the
future distribution

37. What’s the ideal percentage?
1
2 %

38. 5 %
What’s the ideal percentage?

39. 4 %
What’s the ideal percentage?

40. Minimum Spending Requirements

41. The real issue related to
spending is the expected
return on the portfolio

42. 1972
Uniform Management of Institutional Funds Act
Distinguished endowment investment rules from
trust accounting rules
UMIFA

43. 1972
Uniform Management of Institutional Funds Act
UPMIFA
2006
Adds Prudent to UMIFA
Distinguished endowment investment rules from
trust accounting rules
UMIFA

44. Prudent investor rule
A guideline that requires a fiduciary to
invest trust assets as if they were his own
Source: Investopedia

45. 7 UPMIFA factors for use in
determining a spending policy

46. Duration and desire for
preservation of the fund
Purposes of the institution and the
endowment
General economic conditions
1

47. 1
2
Duration and desire for
preservation of the fund
Purposes of the institution
and the endowment
General economic conditions

48. 1
2
3
Duration and desire for
preservation of the fund
Purposes of the institution
and the endowment
General economic conditions

49. 4 Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources of the organization

50. 4
5
Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources of the organization

51. Effect of inflation or deflation
Expected total return from both income
and appreciation of the investments
Resources of the organization
4
5
6

52. Investment policy of the
organization
Purposes of the institution and the
endowment
General economic conditions
7

53. Best Practice #3
Determine an optimum asset allocation

54. UMIFA (1972) and UPMIFA (2006) broadened
prudent investor rules and allowed the
consideration of a greater mix of assets

55. 8% on a government bond
reinvest 3% to keep up with 3% inflation
pay out 5% in support

56. 60%40%
Bonds Stocks

57. Modern Portfolio Theory
Encourages the use of a number of different asset classes
with different standard deviations of risk

58. Modern Portfolio Theory
The result of an analysis of risk and return of potential
investment alternatives will lead to an acceptable mix in
the asset allocation

59. Modern Portfolio Theory
Asset Class
Historical Mix
Greenwich
Associates - IMF
2000 Study of
Large
Endowments
NACUBO-
Commonfund
Study of
Institutions Equal
Weighted
Gross
Mendelsohn’s
Current
Recommendation
Cash 5.0% 2.5% 5.0% 5.0%
Bonds 30.0% 20.0% 21.0% 0.0%
US Equities 40.0% 50.0% 30.0% 40.0%
International Equities 15.0% 15.0% 16.0% 20.0%
Alternative, Real
Estate & Total Return
Managers
10.0% 12.5% 28.0% 35.0%
Total Mix 100.0% 100.0% 100.0% 100%

60. Important factors to consider when
deciding on an investment mix

61. Interest rates are at historic
lows, and expected return on
bonds is, at best, minimal.

62. U.S. and international equities
are generally considered
reasonably valued today.

63. Alternative investments
provide the key to risk
management and taking
advantage of opportunities.

64. Best Practice #4
Select a manager to implement your asset allocation

65. Finding a manager

66. Follow the guidance
of an independent
consultant

67. 3 Things Your Investment
Consultant Should Be Doing

68. 1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equities
International equity investments
Alternate investment areas

69. 1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equities
International equity investments
Alternate investment areas

70. 1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equities
International equity investments
Alternate investment areas

71. 1
Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
Bonds
Domestic equities
International equity investments
Alternate investment areas

72. Within each area of the asset
allocation policy, provide
recommendations for the specific
allocation:
1
Bonds
Domestic equities
International equity investments
Alternate investment areas

73. Report on the background economic
conditions and how they impact the
particular strategic recommendations for
the asset allocation
2

74. Report on the background economic
conditions and how they impact the
particular strategic recommendations for
the asset allocation
2
Report on the returns of the investment
managers and make recommendations
for changes and new areas of
investment
3

75. Case study
A mismanaged endowment fund got
turned around and grew by 20%

76. Best Practice #5
s
Provide for systematic review of risks, monitor the costs
and determine the forum for oversight

77. The final and most
important job

78. Oversight of the asset
allocation
Monitoring the costs of
management
Reviewing manager
selection

79. Investment Policy Statement
Should include the target asset allocation and
list any restrictions on the various types of
assets that could be invested in

80. Investment Policy Statement
Includes the mission, goals, asset allocation
and spending objectives for the fund

81. Investment Policy Statement
Should also include the benchmarks for
determining whether management is
performing as expected

82. Forming an investment
committee

83. The committee should meet
quarterly

84. The committee should challenge
the investment consultant

85. In conclusion
Managing an endowment fund is one the
most critical tasks for any nonprofit board

86. In conclusion
Endowment management can be a
daunting responsibility

87. In conclusion
Board members have big responsibilities
when it comes to how the endowment fund
is to be managed

88. Contact me
DGoldner@gma-cpa.com
800.899.4623
www.gma-cpa.com

89. Free whitepaper
A guide to better endowment
fund management
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