from strategy to structure: fresh perspective on the board's

From Strategy To Structure:Fresh Perspective On The Board's Financial Leadership

John S. Griswold, Jr., Executive Director, Commonfund InstituteFriday, October 31

2008 BoardSource Leadership Forum

Grand Hyatt Washington

1000 H Street, NW

Washington DC 2000

2

Agenda

Growth of Nonprofit Sector in the United States

Market Update

Overview of Nonprofit Financial Responsibilities Financial Plan Budget Roles and Responsibilities Governance / Committee Structure Policies

Asset Management Commonfund Benchmarks Study®

Regulatory Environment Fiduciary Standards Sarbanes-Oxley UPMIFA

3

Steady growth of nonprofits and assets in United States

Nearly 2 million nonprofit institutions (approximation of nonprofits in the U.S.) Representing an increase of 30% since 1996

Americans gave nearly $306 billion in 2007

$3.0 Trillion, estimated size of financial assets 5.2% of U.S. GDP 8.3% of U.S. wages and salaries Nearly $1 trillion spending per year

29% of Americans volunteered through a formal organization

Source: Giving USA FoundationNOTE: Figures are adjusted for inflation.

14.0%

-4.7%

2.8%

6.5%

-3.0%

0.2%

3.4%1.5% 0.4% 0.0%

9.2%

14.5%

6.8%

12.2%

9.6%

-2.2% -1.3%-0.2%

6.8%5.7%

1.0% 1.0%

$100

$150

$200

$250

$300

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

US

$ B

illi

on

s

-10%

-5%

0%

5%

10%

15%

20%

Per

cen

t C

han

ge

(%)

Donations ($bn) (left axis)

% change from previous year (right axis)

4

Setting the Context | Market Headlines

Busting bubbles and the ripple effect

Credit market freeze

Volatility returns with a vengeance

Consumer wealth has declined by between $10 to $12 trillion

Central banks become ATM machines

Recession is here: how long will it last?

Repricing of risk

5

18

Global GDP by Region | 1995 vs. 2007numbers in percent | totals = 100%

24

26

8

96

Germany4 5

United Kingdom

5United States

France

4

44

Italy

14

13

Other Developed

Japan

1995

2007

Developed

Developing Economies

Source: ISI

22

34

Developing Economies

6

U.S. Dollar IndexWeekly Data 8/27/1971 - 10/03/2008 (Log Scale)

(I 240)

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

79

83

87

92

97

102

107

112

118

124

131

138

145

152

160

79

83

87

92

97

102

107

112

118

124

131

138

145

152

160

7

U.S. Real GDP

Source: BEA

-2%

0%

2%

4%

6%

8%

10%19

83

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Per

cen

t C

han

ge

Fro

m Q

uar

ter

On

e Y

ear

Ag

o

-2%

0%

2%

4%

6%

8%

1Q00

2Q00

3Q00

4Q00

1Q01

2Q01

3Q01

4Q01

1Q02

2Q02

3Q02

4Q02

1Q03

2Q03

3Q03

4Q03

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

Qu

arte

rly

GD

P (

%)

8

InflationJanuary 2003 – August 2008

9.6%

3.6%

5.4%

2.6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Jan

200

3

Jul 2

003

Jan

200

4

Jul 2

004

Jan

200

5

Jul 2

005

Jan

200

6

Jul 2

006

Jan

200

7

Jul 2

007

Jan

200

8

Jul 2

008

Per

cen

t (%

)

PPI (YoY)

PPI ex Food & Energy (YoY)

CPI (YoY)

CPI ex Food & Energy (YoY)

Source: BLS

9

Liquidity | Money Supply

Sources: Federal Reserve Bank

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Mil

lio

ns

(US

$)

0

2

4

6

8

10

12

14

16

18

10-Y

ear

T-N

ote

Yie

ld

M2

M2

10-Year T-Note

10

Real Interest Rates

Source: Bloomberg

Fed Funds-CPI yoy, 3Q-1978 to August 2008

-0.5

-6

-4

-2

0

2

4

6

8

10

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

11

EmploymentJanuary 1986 – September 2008*

Source: BLS* Nonfarm Payroll Employment – August, September 2008 are preliminary.

Black MondayOctober 19, 1987

S&L Crisis1990

Mexican Debt Crisis | 1995

Russia/ LTCM1998

NASDAQ Collapse | 2000

0%

2%

4%

6%

8%

10%

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Civ

ilia

n U

nem

plo

ymen

t R

ate

-2%

-1%

0%

1%

2%

3%

4%

No

nfa

rm P

ayro

ll E

mp

loym

ent

Civilian Unemployment Rate (left axis)

Nonfarm Payroll Employment (right axis)

Credit Crisis | 2007 – 2008

12

6.8% Price Decline

from October 1989 to April 1991

Housing Price Appreciation …. Depreciation

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Yea

r O

ver

Yea

r C

han

ge

0

50

100

150

200

250

Ind

ex V

alu

e

Year over Year Change

Composite-10S&P/Case-Shiller Home Price Index (Composite of 10)

Source: Standard & Poors, January 1987 – July 2008

21.1% Price Decline

from June 2006 to July 2008

13

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

S&

P 5

00 I

nd

ex

Anatomy of a Bubble

Source: Bloomberg

S&L Crisis1988-1992747 savings and loan associations failed

Dot-com Bubble1998-2001

Credit Crisis2007 - ???

14

VolatilityAugust 1998 – October 10, 2008

Source: Bloomberg

MOVE10/10/08

264.6

VIX10/10/08

69.95

0

50

100

150

200

250

300

Aug

199

8

Feb

199

9

Aug

199

9

Feb

200

0

Aug

200

0

Feb

200

1

Aug

200

1

Feb

200

2

Aug

200

2

Feb

200

3

Aug

200

3

Feb

200

4

Aug

200

4

Feb

200

5

Aug

200

5

Feb

200

6

Aug

200

6

Feb

200

7

Aug

200

7

Feb

200

8

Aug

200

8

MO

VE

0

10

20

30

40

50

60

70

80

VIX

MOVE Index (left axis)

VIX Index (right axis)

As of October 10, 2008

15

-46.2%

-23.8%

-30.2%

-15.8%

-46.3%

-24.72%

32.0%

51.8%

18.8%

29.1%

22.2%

-60%

-40%

-20%

0%

20%

40%

60%

1972-1975(33 months)

1980-1983(32 months)

1987-1988(15 months)

1990-1991(17 months)

2000-2003(37 months)

2007-9/30/2008(11 months)

Peak to trough "drawdown"

Percent change in 12 months following trough

S&P 500 | Historical Downturns

Source: Bloomberg

Years to Recovery 5.8 0.4 1.7 0.3 4.7 ?

??

16

Historical | Dow Jones Industrial Average

Logarithmic Scale

10/ 24/ 088379

10

100

1000

10000

10000019

28

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

Dow Jones Industrial Average

Source: Bloomberg

17

0

20

40

60

80

100

120

140

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Cu

mu

lati

ve V

alu

e (R

eal

Do

llar

s)

CPI

HEPI

Origninal Market Value Line

Cumulative Inflation-Adjusted Performance70% S&P 500, 30% Lehman Aggregate and 5% Spend

Real Value using CPI as the Deflator

Real Value using HEPI as the Deflator

Time Period – 42 Years

Source: Ibbotson, Bloomberg, Commonfund InstituteThe equity portion of the hypothetical portfolio is based on monthly returns of the S&P 500 Index (12/65-2/08), and the fixed income portion is based on monthly returns of the Lehman Brothers Aggregate Index (01/73-2/08) and the Ibbotson Associates Long Term Corporate Bond Index (12/65-12/72). HEPI data from 07/06 to 2/08 is estimated using the Commonfund Institute method based on regression analysis. Returns for this hypothetical portfolio assume that it is rebalanced to 70/30 annually on 1/1/yy and 5% is distributed annually on 1/1/yy.

18

Return/Risk

10 Year Period Ending December 31, 2007

3-Month T-bill

International Equities

Private Real Estate

Private Capital

Distressed Debt

Hedge StrategiesPublic Real Estate

U.S. Government BondsU.S. High Yield Bonds

International Bonds U.S. Large Cap Equities

U.S. Small Cap Equities

Emerging Markets Equities

Commodities

0%

5%

10%

15%

20%

0% 5% 10% 15% 20% 25%

Standard Deviation (%)

Ann

ualiz

ed R

etur

n (%

)

Source: Style Advisor; AltvestThe following are the indices used by asset class: U.S. Government Bonds, Lehman Aggregate Bond Index; U.S. High Yield Bonds, Merrill Lynch High Yield Master II; International Bonds, Citigroup World Govt’ Bond Index; U.S. Large Cap Equities, S&P 500 Index; U.S. Small Cap Equities, Russell 2000 Index; International Equities, MSCI World Ex-US Index; Private Real Estate, NCREIF; Private Capital, Venture Economics (10 years through 9/30/2007); Emerging Markets Equities, MSCI EMF Index; Distressed Debt, HFRI Distressed Securities Index; Hedge Strategies, HFRI Equity Hedge Index; Commodities, Dow AIG Commodity Index; Public Real Estate, Dow Wilshire REIT Index

19

The Power of Diversification

Sources: Bloomberg, HFRI, Venture Economics

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Venture capital 49.3% 42.9% 33.1% 26.7% 184.3% 31.8% 13.9% 25.9% 40.0% 31.6% 21.4% 35.1% 23.2%

S&P 500 Index 34.1% 35.3% 31.0% 19.0% 71.0% 26.4% 12.2% 19.5% 37.1% 20.8% 21.0% 26.2% 20.7%

Private equity 31.9% 34.5% 27.4% 18.8% 44.2% 25.7% 8.9% 10.3% 26.4% 18.1% 15.0% 20.7% 16.2%

Hedged Equity 31.0% 24.8% 23.4% 16.0% 28.4% 13.4% 8.4% 7.4% 25.3% 15.4% 12.6% 17.1% 12.9%

Global Macro 29.3% 23.2% 21.2% 15.3% 24.3% 11.6% 6.9% 5.4% 23.9% 15.0% 12.2% 15.3% 11.7%

Event Driven 25.1% 21.8% 20.3% 15.0% 24.3% 11.2% 0.4% 3.8% 21.4% 10.4% 10.7% 13.6% 11.0%

Cirigroup World Govt Bond Index 19.0% 20.3% 18.8% 8.7% 19.5% 9.1% -1.0% -4.3% 20.5% 9.1% 7.3% 12.4% 10.7%

Lehman Agg Bond Composite Index 18.5% 14.5% 15.9% 6.2% 17.6% 6.7% -13.0% -4.7% 17.9% 9.0% 6.1% 11.7% 9.0%

Relative Value Arbitrage 15.7% 9.3% 9.7% 2.8% 14.7% 2.0% -19.5% -12.3% 14.9% 7.4% 6.0% 8.5% 7.0%

NAREIT Equity Index 15.3% 7.2% 2.6% 1.7% -0.8% 1.6% -20.5% -15.5% 9.7% 5.6% 3.0% 6.1% 6.9%

Natural Resources (DJ AIG) 15.2% 3.6% 0.2% -17.5% -4.3% -10.1% -21.2% -23.4% 6.9% 4.4% 2.4% 4.3% 5.5%

MSCI World (ex-US) Index 11.8% 3.6% -3.4% -27.0% -4.6% -13.2% -34.0% -29.5% 4.1% 4.3% -6.9% 2.1% -15.7%

20

Strategic Financial Plan

1. Institutional Strategic PlanGoal: Success of Mission

2. Strategic Financial PlanGoal: Financial Equilibrium

3. Strategic BudgetingGoal: Coordination of Competing Needs and Resources

4. Annual BudgetGoal: Efficient Execution

21

Financial Plan

Based on mission

All-encompassing

Coordinated with strategic plan

Board approved

QUESTON: How close are we to financial equilibrium?

22

Budget

Balance Sheet (Revenues/ Liabilities)

Income Statement (Cash flows)

Spending (Method/ Rate)

QUESTON: Are we maintaining intergenerational equity?

23

Roles and Responsibilities

Staff

Volunteers

External resources

QUESTON: Are the right people on the bus and in the right seats?

24

Nonprofit Investment Management Governance Model

Volunteer Roles

Board

InvestmentCommittee

FinanceCommittee

AuditCommittee

Staff Roles

CEO

CIO

CFO

CDO

Consultant/Manager Roles

External Resources

Investment Consultant

Auditor/ Custodian

Portfolio Manager

25

Nonprofit Investment Management Governance Model

Volunteer Roles

Board

InvestmentCommittee

FinanceCommittee

AuditCommittee

Staff Roles

CEO

CIO

CFO

CDO

Consultant/Manager Roles

External Resources


Auditor/ Custodian

Portfolio Manager

Chief Development Officer (CDO)

• Report to CEO and Finance Committee

• Develop and oversee major and annual gift strategy

• Develop and oversee planned gift strategy

• Supervise development staff

• Needs a working knowledge of endowment management best practices

Chief Investment Officer (CIO)

• Report to CEO and Finance Committee

• Prepare and manage annual budget

• Recommend and manage debt policy

• Oversee audit of organization, including investment portfolio

• Optimize cash flow

Chief Financial Officer (CFO)

• Report to CEO and Investment Committee

• Execute investment policy

• Maintain asset allocation / policy portfolio

• Oversee and recommend manager / security selection

• Oversee performance reporting and attribution

• Recommend and implement risk management

• Recommend and conduct portfolio rebalancing

• Conduct tactical asset allocation within policy portfolio

Audit Committee

• Report to Board

• Select and hire independent auditor

• Manage and oversee audit process

• Review audit findings and management letter with auditors

• Present financial statements and auditors’ recommendations to Board

• Oversee business office processes

• Oversee conflict-of-interest and whistleblower policy

Finance Committee

• Report to Board

• Develop financial strategy and oversee financial operations

• Review and monitor financial operations

• Maintain financial records

• Present financial information to Board

• Approve capital budgets and debt issuance

• Communicate with and educate Board on financial matters

Investment Committee

• Report to Board

• Develop investment policy

• Develop and oversee asset allocation / Policy portfolio

• Develop and oversee spending policy

• Set risk tolerance and oversee risk management

• Monitor investment performance (manager / portfolio)

• Direct hiring / compensation of managers and consultants Auditor/ Custodian

• Auditor reports to CFO / Audit Committee

• Custodian reports to CIO / Investment Committee

• Provide audit / custody services

• Reporting, fund accounting

• Transfer agent

• Compliance

• Legal counsel


• Report to CIO/ Investment Committee

• Educate / inform Investment Committee

• Assist with development and review of investment policy statement and policy portfolio

• Conduct asset allocation studies

• Implement manager search process

• Conduct ongoing manager evaluation and reporting

• Provide Investment Committee with research / analysis

Portfolio Manager

• Report to CIO / Investment Committee

• Conduct investment strategy as contracted

• Provide regular written reports and risk-adjusted performance attribution

• Provide educational materials and economic / market analysis

26

Financial Governance/ Committee Structure

Financial

Investment

Audit

(Governance)

QUESTON: Do our committees operate effectively and efficiently?

27

Board Committees

88%

82%

77%

56%

43%

43%

41%

38%

36%

Executive committee

Finance committee

Audit committee

Development/fundraisingcommittee

HR/compesation committtee

Strategic planning committee

Program committee

Governance committee

Investment committee

Note: Data represents responses from 603 not-for-profit organizationsSource: The 2007 Grant Thornton LLP, National Board Governance Survey for Not-for-Profit Organizations

28

Policies

Investment Asset Allocation (policy portfolio) Spending Roles and Responsibilities

Conflict of Interest

Debt

Gifts

Whistleblower

Document retention

Code of Ethics

QUESTON: Are we covered?

29

Governance Policy Changes

Note: Data represents responses from 603 not-for-profit organizationsSource: The 2007 Grant Thornton LLP, National Board Governance Survey for Not-for-Profit Organizations

92%

89%

87%

87%

82%

78%

75%

68%

68%

60%

30%

8%

11%

13%

13%

18%

22%

25%

32%

32%

40%

70%

Implemented accounting policies/ procedures

Adopted conflict-of-interest policy

Rivised investment policy

Created new governance policies

Established audit committee

Updated record-retention policy

Established cod-of-ethics policy

Updated gift-acceptance policy

Established wistle-blower policy

Developed audit committee charter

Established policy for board members to review Form 990/ 990-T

Have Adopted Have NOT Adopted

30

Asset Management

Cash

Endowment/ Long term funds Benchmarks Study Topline Leaders

Plant/ Campus

Human Resources

QUESTON: Are we staying ahead of spending + inflation + costs?

31

Commonfund Investment Management & Governance Seminars (3 per Year)

Commonfund Trustee Roundtable Series (Twice monthly on average)(Also in Canada and Puerto Rico)

Commonfund Benchmarks Study® Series Endowment Institute Regional Roundtables and Seminars Publications and White Papers Treasury Institute for Higher Education Higher Education Price Index (HEPI) Commonfund Xchange Teleconferences

Education and Best PracticesA Commitment to Professional Development and the Sharing of Best Practices

32

Total Return by Segment

NOTE: Fiscal year end for the majority of Educational Institutions is June 30th. For the Foundations, Operating Charities and Healthcare sectors fiscal year end is typically December 31st. Copyright 2008 The Common Fund for Nonprofit Organizations.All rights reserved. "Commonfund" and "Commonfund Benchmarks Study" are trademarks of The Common Fund for Nonprofit Organizations. No part of this material may be used without the express written permission of The Common Fund for Nonprofit Organizations.

3.1%

14.7%

9.7%

10.6%

17.0%

11.4%

8.1%

13.7%13.0%

10.6%

16.9%

9.9%

11.3%

7.9%

10.1%

8.2%

6.3%

8.0%

14.1%

0%

5%

10%

15%

20%

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

EducationFoundationOperating CharitiesHealthcare

33

Asset Allocation TrendsOverall

Foundations Operating Charities HealthcareEducational Endowments

2% 3%8% 5% 2%

7% 5%

39%42%

23% 28%

13%

13% 17%

20%20%

20%20%

19%14%

15%

13%12%

16% 15%

26%

35% 32%

26% 23%

33% 32%40%

31% 31%

5%

18%

19%

22%

36%

0%

100%

FY 2006 FY 2007 FY 2006 FY 2007 FY 2006 FY 2007 FY 2006 FY 2007

Ass

et A

llo

cati

on

Domestic Equities

Fixed Income

International Equities

Alternative Investments

Short Term Securities/Cash


34

Asset Allocation Trends Alternatives – Marketable Alternatives Continue to Dominate Alternative Strategies

Foundations HealthcareOperating CharitiesEducational Endowments

3% 2%6% 6%

1% 1% 2%

7% 7%

10% 9%

2% 3% 3%

14% 19%

17% 17%

10% 9%11%

14%10%

10% 10%

11% 8%11%

16% 14%12% 14%

17%

9%

13%

46% 48% 46% 44%

59%

70%

60%

2%5%

12%

11%

19%

51%

0%

100%

FY 2006 FY 2007 FY 2006 FY 2007 FY 2006 FY 2007 FY 2006 FY 2007

Ass

et A

llo

cati

on

Marketable AlternativesEquity Real EstateEnergy & Natural ResourcesPrivate EquityVenture CapitalDistressed Debt


35

Spending RateBy Fiscal Year

5.7%5.6%

4.4%4.5%4.6%

4.8%4.9%

5.5%5.5%

6.3%

5.8%

5.5%

5.1%

5.5%

2.0%

4.5%

7.0%

FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

Sp

en

din

g R

ate

(%

)

Education

Foundations

Operating Charities


36

Staffing of Investment FunctionBy Fiscal Year

FY 056.3

FY 058.3

FY 067.8

FY 065.9

FY 03 7.7

FY 036.3

FY 038.6 FY 04

8.3

FY 046.6

FY 048.2

FY 05 8.2

FY 06 8.7

FY 068.2

FY 077.6

FY 078.0

FY 078.5

FY 07 6.0

5.5

9.0

Education Foundations Operating Charities Healthcare

Nu

mb

er

of

Pe

op

le

Investment Committee Members

FTEs Overseeing Investments

FY 051.2

FY 051.3

FY 061.3

FY 061.3 FY 06

1.1

FY 03 0.7

FY 031.1

FY 032.6

FY 041.0

FY 041.1

FY 041.2

FY 05 1.2

FY 06 1.2

FY 07 1.4 FY 07

1.2

FY 07 1.4

FY 07 1.3

0.5

3.0

Education Foundations Operating Charities Healthcare

Nu

mb

er

of

Pe

op

le


37

Development

Annual Giving

Capital Gifts Endowment (Restricted/ Unrestricted) Construction/ Renovation

Planned Gifts

QUESTON: Are we staying ahead of spending + inflation + costs?

38

Debt Management

Capital needs plan

Debt service

Hedging risk of rate volatility

QUESTON: What is our risk exposure?

39

Legal/ Regulatory

3 Duties Care Loyalty Responsibility

IRS Form-990UPMIFAFederalState

QUESTON: What is our risk exposure?

40

“The Trustees of an endowment institution are the guardians of the future against the claims of

the present. Their task is to preserve equity among

generations.”

James Tobin – Yale University

41

Duty of Care

To act reasonably and in an informed manner when making decisions

Follow the “prudent man” rule

Attend meetings

Show independent judgement

Know your organization

Rely on trustworthy sources

42

Duty of Loyalty

Trustees must give undivided allegiance to the institution when making decisions affecting the organization

Personal interests (family or associated business interests) should be subordinate to the interests of the organization

Avoid conflicts of interest Develop a written policy Disclose and record all relationships Be aware that perception can equal reality

Review ambiguous situations at Board level

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Duty of Responsibility

Ensure that the organization remains faithful to its central purpose as expressed in its mission statement and by-laws

Make certain that all those in authority are acting in concert and in the best interest of the organization

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Summary

Take an all encompassing approach to developing a financial plan

Review your governance structure

Recruit the best talent available

Develop written policies and review regularly

Control costs

Diversify your revenue streams

Diversify your portfolio

Keep an eye on regulatory environment

APPENDIX

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UPMIFA Highlights

Investment freedom. Portfolio managers are not limited in the kinds of assets that may be sought for the portfolio. (Broader than UMIFA)

Costs. Costs must be managed prudently in relationship to the assets, the purposes of the institution and the skills available to the institution. (Not addressed in UMIFA)

Expenditure of funds. Total return expenditure is expressly authorized under comprehensive prudent standards relating to the whole economics situation of the charitable institution. (UMIFA does not address this standard)

UPMIFA abolishes the historic dollar value limitation on expenditure in UMIFA.

Seven percent rule. States may adopt an optional rule that presumes expenditure exceeding 7% of total return is imprudent. (Not addressed in UMIFA)

Release of restrictions for small institutional funds. These is a new procedure for releasing restrictions on small institutional funds (less than $25,000) held for a long period of time (20 years), requiring only notice to the Attorney General 60 days in advance of the release. (Not addressed in UMIFA)

Application. UPMIFA applies to funds held in any form, including nonprofit corporate form, except charitable trusts, with a commercial or individual trustee. (UMIFA applies only to endowments held by a charitable institution for its own account)

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Bibliography Web sites

www.agb.org

www.commonfund.org

www.nacubo.org

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