Endowment Investment Management

Blog
September 8, 2010

Endowments are permanently restricted assets maintained with the intent of having a source of investment income that can be utilized toward the endowment’s mission. In this time of a dodgy economy and fearful market, it is critical to revisit and assess whether the portfolio is performing to the best possible effect.

Effective asset management includes assessing whether or not the policies and oversight are still suitable for less effluent times. When the market was easier, a fading memory at best, it was reasonable to have occasional committee meetings and let the returns come in without second guessing the investment strategy. If it worked then, shouldn’t we just hold tight? Maybe, maybe not.

It is a good time to take a hard look at the committee and guidelines of the endowment investments. Do those individuals have the investment understanding necessary to navigate a more complex market?  Are they able to dedicate an appropriate amount of time for review of performance? Is the investment allocation still appropriate? Are the growth versus risk assessments still accurate?

According to the investment research and consulting teams at Cambridge Associates, “Few endowments allocate sufficient time to evaluating what they spend to manage their assets and whether this money is well or badly deployed. As a result, the money is often deployed badly, thoughtlessly, in ways that do not yield value – but no one realizes this because no one is keeping score. A high-cost structure can only be justified by superior performance, while a low-cost structure should also be scrutinized to determine whether the organization is in fact penny wise but pound foolish.”

It may not be as simple as outsourcing the portfolio management. It is possible for an endowment to pay for expensive management but insist on the same allocations as historically utilized, effectively reducing the manager’s ability to do what they are being paid to do. However, if the committee themselves think what worked in 2005 should work just fine in 2010, it may be time to bring in some professional guidance.