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Posted by Brian Jones on Tue, Apr 28, 2020 @ 03:52 PM

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Ensuring the survival of the fund is often the primary goal of any foundation or endowment. Maintaining the principal and spending power of a fund so that benefits available for current recipients are the same for future generations is a challenging task, but when shocks to the global economy and financial markets occur, the challenge may seem impossible. Shocks can come from within the markets, as in the subprime loans of the 2008 financial crisis, or from external factors, such as with the coronavirus pandemic we are experiencing now.

Market volatility can create pressure on boards and committees, but placing context around recent events can help you navigate through turbulent times and safeguard one of your institution’s greatest assets.

Remember What History Tells Us

In times of uncertainty, it is important to remember the lessons that we have learned from other disruptive events, such as the 2008 financial crisis. The dramatic declines associated with the 2008 crisis drove home the importance of understanding portfolio liquidity and diversification at the asset class, investment strategy and money manager/fund levels. Suddenly, the importance of transparency, independent audits, and the ability to understand investment exposures were brought to the forefront.

Today, investors and allocators have a better view and deeper due diligence options thanks to new industry best practice standards and other changes spurred from financial events. We are now able to apply the lessons we learned from past shocks to help address risk during these uncertain times.

Addressing Risk through Principle

Fundamentally, we need to understand the importance of addressing risk at an institutional level, not just in individual silos. We can do this by applying the principles of Enterprise Risk Management (ERM) which encompasses several areas:

  • Assessing the impact of risk to both the operations and the mission of your institution;
  • Developing and implementing responses to risks that you encounter;
  • Creating mitigation plans to have in place when risk is present;
  • Identifying and monitoring both existing and emerging risk.

Addressing Risk through Policy

Dramatic swings in the market reinforce the importance of maintaining an open dialogue about risk by performing the four steps below to put yourself in the best position to face the unexpected:

  1. Establishing and continuously reviewing an investment policy
  2. Designing an asset allocation that aligns with objectives
  3. Selecting managers who are best suited to execute your strategy
  4. Evaluating performance to keep you disciplined and well-informed

Conclusion

As investors, we understand that there may be shocks to the global economy and the markets from time to time. The unique challenges the coronavirus has created has higher education and not-for-profit institutions testing the longstanding norms of institutional trusteeship and how boards and committees interact. Using the principles of ERM and establishing a policy to address risk across your institution will help better position your endowment or foundation to respond to times of uncertainty and ultimately benefit, now and into the future.

More Information

For more information on Sustaining Foundations and Endowments, please contact us.  

Looking for more COVID-19 resources? Visit our resource center for expertise on impacts to expect and how your business can respond.

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Brian Jones - Copy (002)Brian is a senior vice president and senior consultant for CBIZ Investment Advisory Services, LLC (CBIZ IAS), a Registered Investment Advisory firm. He can be reached at 901.761.8080 or brian.jones@cbiz.com 

 

 

 

Copyright © 2020 CBIZ & MHM (Mayer Hoffman McCann P.C.). All rights reserved. CBIZ and MHM are separate and independent legal entities that work together to serve clients. CBIZ  is a leading provider of tax and consulting services. MHM is an independent CPA firm providing audit and other attest services. This article is protected by U.S. and international copyright laws and treaties. Use of the material contained herein without the express written consent of the firms is prohibited by law. Material contained in this alert is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their business.

Tags: not-for-profit, NFP, Endowments, foundations

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