An authoritative guide for effective investment management and oversight of endowments, foundations and other nonprofit investors Nonprofit Asset Management is a timely guide for managing endowment, foundation, and other nonprofit assets. Taking you through each phase of the process to create an elegant and simple framework for the prudent oversight of assets, this book covers setting investment objectives; investment policy; asset allocation strategies; investment manager selection; alternative asset classes; and how to establish an effective oversight system to ensure the program stays on…mehr
An authoritative guide for effective investment management and oversight of endowments, foundations and other nonprofit investors
Nonprofit Asset Management is a timely guide for managing endowment, foundation, and other nonprofit assets. Taking you through each phase of the process to create an elegant and simple framework for the prudent oversight of assets, this book covers setting investment objectives; investment policy; asset allocation strategies; investment manager selection; alternative asset classes; and how to establish an effective oversight system to ensure the program stays on track. Takes you through each phase of the process to create an elegant and simple framework for the prudent oversight of nonprofit assets A practical guide for fiduciaries of endowment, foundation, and other nonprofit funds Offers step-by-step guidance for the effective investment management of assets
Created as a practical guide for fiduciaries of nonprofit funds--board members and internal business managers--Nonprofit Asset Management is a much-needed, step-by-step guide to the effective investment management of nonprofit assets.
MATTHEW R. RICE, CFA, CAIA(R), is Chief Investment Officer and a Principal at DiMeo Schneider & Associates, LLC, a Chicago-based investment consulting firm that oversees more than $35 billion in institutional and high-net-worth investment assets. He is a coauthor of The Practical Guide to Managing Nonprofit Assets (Wiley). ROBERT A. DiMEO, CIMA(R), CFP(R), is the Managing Director and cofounder of DiMeo Schneider & Associates, LLC. He has been featured in prominent publications such as the Los Angeles Times, Crain's Chicago Business, and Pensions & Investments and is coauthor of numerous books, including The Practical Guide to Managing Nonprofit Assets (Wiley). MATTHEW P. PORTER, CIMA(R), is Director of Research Analytics and a Principal at DiMeo Schneider & Associates, LLC. He has served as consultant to a number of nonprofit and corporate clients and is coauthor of The Practical Guide to Managing Nonprofit Assets (Wiley).
Inhaltsangabe
Preface xi Acknowledgments xv CHAPTER 1 The Three Levers and the Investment Policy 1 The Three Levers 1 Investment Policy Statement 5 Statement of Purpose 6 Statement of Objectives 6 Liquidity Constraints 8 Unique Constraints or Priorities 10 Investment Strategy 11 Duties and Responsibilities 14 Investment Manager Evaluation 15 Conclusion 16 CHAPTER 2 Asset Allocation 17 Modern Portfolio Theory 17 Capital Market Assumptions: The Building Blocks of Portfolio Construction 20 Shortcomings of Modern Portfolio Theory 20 Probabilistic Optimization Models--The Frontier EngineerTM 24 In the Long Run . . . 26 Strategic, Tactical, and Integrated Asset Allocation Steering Mechanisms 27 The Low Volatility Tailwind 29 Tail Risk Hedging 31 Counterparty Risk 33 Portfolio Rebalancing 34 Conclusion 38 Notes 38 CHAPTER 3 Traditional Global Financial Asset Classes 39 Global Fixed-Income Asset Classes 39 Global Equity Asset Classes 55 Conclusion 59 Notes 59 CHAPTER 4 Traditional Asset Class Manager Selection 61 Manager Search and Selection 61 Investment Vehicles 67 Active versus Passive Management 68 When to Terminate a Manager 70 Conclusion 72 CHAPTER 5 Hedge Funds 73 The Evolution of Hedge Funds 73 Modern Hedge Fund Strategies 74 Why Invest in Hedge Funds? 78 Alpha-Beta Framework, Hedge Funds, and Fees 85 Hedge Fund Indices and Benchmarks 87 Hedge Fund Terms and Structures 88 Fund of Hedge Funds versus Direct Investment 89 Hedge Fund Investment Due Diligence 90 Hedge Fund Operational Due Diligence 92 Hedge Funds in the Post-2008 World 93 Conclusion 94 Notes 94 CHAPTER 6 Private Equity 95 Private Equity Investment Strategies 95 Why Invest in Private Equity? 98 Structure and Terms 99 Private Equity Risks 100 Direct Private Equity versus Private Equity Fund of Funds 101 Selecting Private Equity Managers 102 Benchmarks 102 Conclusion 103 Notes 103 CHAPTER 7 Real Assets 105 Commodities 106 Equity Real Estate Investment Trusts and Private Real Estate 108 Farmland 109 Energy Infrastructure Master Limited Partnerships 111 Broad Infrastructure Investing 112 Timberland 113 Gold 115 Other Investible Real Asset Categories 116 Conclusion 117 Note 117 CHAPTER 8 Performance Measurement and Evaluation 119 Why Monitor Performance? 119 Performance Calculations 119 Benchmarks 120 Market Index Basics 120 Investment Style 121 Major Market Indices 123 Determining the Right Index 124 Peer Group Universes 124 Modern Portfolio Theory Performance Metrics 126 Style Analysis 127 Portfolio Analysis 128 Performance Reporting 128 Conclusion 129 CHAPTER 9 Structuring an Effective Investment Committee 131 Procedures 131 Committee Structure 132 Committee Makeup 133 When an Investment Committee Needs Outside Help 134 Effective Use of the Consultant 135 Conclusion 136 CHAPTER 10 Outsourced Chief Investment Officer Services 137 Overview 137 Why Outsource? 138 Outsourced Services 139 What Is Done in Conjunction with the Committee? 139 Potential Benefits 139 Finding a Firm 140 Characteristics 140 The RFP 141 Interviewing Finalists 141 Fees 142 The Contract 142 Reporting 143 Conclusion 143 CHAPTER 11 Environmental, Social, and Corporate Governance-Focused Investing 145 History and Evolution 145 Negative Screening 146 Positive Screening 146 Shareholder Advocacy 146 Community Investing 147 Strategy Considerations 148 Investment Selection 149 Separate Accounts 149 Mutual Funds 149 Commingled Funds 149 Exchange-Traded Funds 150 Alternative Investments 150 Performance Impact of ESG 151 Incorporating ESG into Investment Policy 151 Conclusion 152 Notes 152 CHAPTER 12 Selecting Vendors 153 Custodians 153 Record Keepers and Administrators 156 Broker/Dealers 157 Transition Managers 158 Conclusion 160 CHAPTER 13 Hiring an Investment Consultant 161 The Investment Consultant 162 Identifying a Qualified Investment Consultant 162 Effective Use of a Consultant 168 Conclusion 168 CHAPTER 14 Behavioral Finance 169 Trying to Break Even 170 Snake Bitten 170 Biased Expectations and Overconfidence 170 Herd Mentality 171 Asset Segregation or Mental Accounting 171 Cognitive Dissonance 171 Anchors 172 Fear of Regret and Seeking Pride 172 Representativeness 172 Familiarity 173 Investor Personality Types 173 Risk-Seeking Behavior 173 Naturally Occurring Ponzi Schemes and Market Bubbles 174 Conclusion 175 Note 175 CHAPTER 15 Legal Aspects of Investing Charitable Endowment, Restricted, and Other Donor Funds 177 Nature of Endowment or Restricted Funds 177 Endowments Created by the Board 178 Donor-Created Endowment Funds 178 Donor-Created Restricted Gifts or Funds 179 GAAP Accounting Treatment 179 General Statement about Investing Endowment 179 Context: The Historical Prudent Man Rule 180 Trusts: The Prudent Investor Act 180 Uniform Prudent Management of Institutional Funds Act 181 Private Foundation Rules 184 Conclusion 185 Final Thoughts 187 Takeaways 188 Conclusions 188 Appendix: Case Study: Developing Capital Market Assumptions 189 About the Authors 209 About the Contributing Authors 211 Index 215
Preface xi Acknowledgments xv CHAPTER 1 The Three Levers and the Investment Policy 1 The Three Levers 1 Investment Policy Statement 5 Statement of Purpose 6 Statement of Objectives 6 Liquidity Constraints 8 Unique Constraints or Priorities 10 Investment Strategy 11 Duties and Responsibilities 14 Investment Manager Evaluation 15 Conclusion 16 CHAPTER 2 Asset Allocation 17 Modern Portfolio Theory 17 Capital Market Assumptions: The Building Blocks of Portfolio Construction 20 Shortcomings of Modern Portfolio Theory 20 Probabilistic Optimization Models--The Frontier EngineerTM 24 In the Long Run . . . 26 Strategic, Tactical, and Integrated Asset Allocation Steering Mechanisms 27 The Low Volatility Tailwind 29 Tail Risk Hedging 31 Counterparty Risk 33 Portfolio Rebalancing 34 Conclusion 38 Notes 38 CHAPTER 3 Traditional Global Financial Asset Classes 39 Global Fixed-Income Asset Classes 39 Global Equity Asset Classes 55 Conclusion 59 Notes 59 CHAPTER 4 Traditional Asset Class Manager Selection 61 Manager Search and Selection 61 Investment Vehicles 67 Active versus Passive Management 68 When to Terminate a Manager 70 Conclusion 72 CHAPTER 5 Hedge Funds 73 The Evolution of Hedge Funds 73 Modern Hedge Fund Strategies 74 Why Invest in Hedge Funds? 78 Alpha-Beta Framework, Hedge Funds, and Fees 85 Hedge Fund Indices and Benchmarks 87 Hedge Fund Terms and Structures 88 Fund of Hedge Funds versus Direct Investment 89 Hedge Fund Investment Due Diligence 90 Hedge Fund Operational Due Diligence 92 Hedge Funds in the Post-2008 World 93 Conclusion 94 Notes 94 CHAPTER 6 Private Equity 95 Private Equity Investment Strategies 95 Why Invest in Private Equity? 98 Structure and Terms 99 Private Equity Risks 100 Direct Private Equity versus Private Equity Fund of Funds 101 Selecting Private Equity Managers 102 Benchmarks 102 Conclusion 103 Notes 103 CHAPTER 7 Real Assets 105 Commodities 106 Equity Real Estate Investment Trusts and Private Real Estate 108 Farmland 109 Energy Infrastructure Master Limited Partnerships 111 Broad Infrastructure Investing 112 Timberland 113 Gold 115 Other Investible Real Asset Categories 116 Conclusion 117 Note 117 CHAPTER 8 Performance Measurement and Evaluation 119 Why Monitor Performance? 119 Performance Calculations 119 Benchmarks 120 Market Index Basics 120 Investment Style 121 Major Market Indices 123 Determining the Right Index 124 Peer Group Universes 124 Modern Portfolio Theory Performance Metrics 126 Style Analysis 127 Portfolio Analysis 128 Performance Reporting 128 Conclusion 129 CHAPTER 9 Structuring an Effective Investment Committee 131 Procedures 131 Committee Structure 132 Committee Makeup 133 When an Investment Committee Needs Outside Help 134 Effective Use of the Consultant 135 Conclusion 136 CHAPTER 10 Outsourced Chief Investment Officer Services 137 Overview 137 Why Outsource? 138 Outsourced Services 139 What Is Done in Conjunction with the Committee? 139 Potential Benefits 139 Finding a Firm 140 Characteristics 140 The RFP 141 Interviewing Finalists 141 Fees 142 The Contract 142 Reporting 143 Conclusion 143 CHAPTER 11 Environmental, Social, and Corporate Governance-Focused Investing 145 History and Evolution 145 Negative Screening 146 Positive Screening 146 Shareholder Advocacy 146 Community Investing 147 Strategy Considerations 148 Investment Selection 149 Separate Accounts 149 Mutual Funds 149 Commingled Funds 149 Exchange-Traded Funds 150 Alternative Investments 150 Performance Impact of ESG 151 Incorporating ESG into Investment Policy 151 Conclusion 152 Notes 152 CHAPTER 12 Selecting Vendors 153 Custodians 153 Record Keepers and Administrators 156 Broker/Dealers 157 Transition Managers 158 Conclusion 160 CHAPTER 13 Hiring an Investment Consultant 161 The Investment Consultant 162 Identifying a Qualified Investment Consultant 162 Effective Use of a Consultant 168 Conclusion 168 CHAPTER 14 Behavioral Finance 169 Trying to Break Even 170 Snake Bitten 170 Biased Expectations and Overconfidence 170 Herd Mentality 171 Asset Segregation or Mental Accounting 171 Cognitive Dissonance 171 Anchors 172 Fear of Regret and Seeking Pride 172 Representativeness 172 Familiarity 173 Investor Personality Types 173 Risk-Seeking Behavior 173 Naturally Occurring Ponzi Schemes and Market Bubbles 174 Conclusion 175 Note 175 CHAPTER 15 Legal Aspects of Investing Charitable Endowment, Restricted, and Other Donor Funds 177 Nature of Endowment or Restricted Funds 177 Endowments Created by the Board 178 Donor-Created Endowment Funds 178 Donor-Created Restricted Gifts or Funds 179 GAAP Accounting Treatment 179 General Statement about Investing Endowment 179 Context: The Historical Prudent Man Rule 180 Trusts: The Prudent Investor Act 180 Uniform Prudent Management of Institutional Funds Act 181 Private Foundation Rules 184 Conclusion 185 Final Thoughts 187 Takeaways 188 Conclusions 188 Appendix: Case Study: Developing Capital Market Assumptions 189 About the Authors 209 About the Contributing Authors 211 Index 215
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