Kate Adams: ‘Truly, a democratic fund’

Kate Adams was responsible for daily operation of the fund during the 1980s. Today, she is a Vice President of the Church Pension Group, which provides a wide range of financial and investment support services to the Episcopal Church USA.

Looking back on the Short Term Fund’s 30 years, she focuses on three factors of historic importance: 1) The central role played by the schools themselves in making the Short Term Fund a success; 2) The growth of assets and the resulting strength it imparted to the fund; and 3) The first time the Reserve Fund reached 2 percent of the average daily collected balance – to her, a final confirmation that this innovative fund feature would truly work as conceived.

A fund for all schools
“The triumph of the Short Term Fund is that it is a fund for all schools. It’s a single fund that is used by schools with some of the largest endowments in the world and small, independent day schools with much more limited resources. The fund started operations on October 1, 1974, with 52 participating schools. The beauty of what happened over the next few years is that the schools themselves spread the word – they understood the benefits offered by the Short Term Fund. The schools should get credit – they made the Short Term Fund become, truly, a democratic fund. The fund has also proved itself to be a fund for all seasons, in that it has come through for participating schools, no matter what the interest rate environment. Today, it’s also the fund for all people. We believed in the Short Term Fund because we believed in the mission of our schools: educating young people. Today, you walk into a classroom and you’re quite likely to find a 65- or 70-year-old student sitting alongside a 20-year-old.”

Size benefits performance and fees
“Because the schools adopted the Short Term Fund as their own, the fund was able to grow and reach critical mass. Greater asset size meant Commonfund could lower fees, and it gave the managers more flexibility in the marketplace, helping to drive better performance. The Short Term Fund’s average daily collected balance first hit $1 billion in the third quarter of 1982. That doubled by the second quarter of 1985. Last year, the average daily collected balance was $11.6 billion. In the early years, fees averaged 30 basis points. For the past few years, they have averaged just 20 basis points.”

The Reserve Account lives up to expectations
“When the fund was established as a bank common trust fund, it included a smoothing formula called the Reserve Account, which is used to stabilize returns. Each month, the fund’s actual return is compared to the interest rate on 90-day Treasury bills. If the fund’s total return is greater than the Treasury bill rate, then the Treasury bill rate plus a portion of the excess return is credited to participants that month and the remainder is credited to the Reserve Account. If the total return is less than the Treasury bill rate, then the fund pays the Treasury bill rate and charges the difference against the Reserve Account. While this formula has remained unchanged over the fund’s history, the landmark that I recall is the Reserve Account hitting 2 percent of the average daily collected balance, representing the cut-off level for contributions to the reserve. It took no time to dip into the Reserve Account; that happened in the first quarter of 1975. We didn’t reach the full 2 percent until second quarter of 1988. It confirmed the basic concept of the Reserve Account and that it could work as anticipated. Being able to build the Reserve Account to a full 2 percent also underscored the strength of the fund’s multi-managed structure. It was such a thrill that quarter to be able to give that ‘bonus’ back to the schools – I never will forget it!”

Jon Speare: ‘From day one, the fund broke new ground for accessibility’

Jon Speare is a Managing Director of Commonfund and head of Commonfund Treasury. He is also Co-Executive Director of the Treasury Institute for Higher Education. Prior to joining Commonfund in 1996, he was with MAS Funds and CoreStates Bank.

Speare thinks of the Short Term Fund as “one of a kind.” He explains, “There wasn’t anything like it at the time it was founded, and there hasn’t been anything like it since.” Narrowing his focus, Speare selects three factors of historic significance: 1) Unprecedented levels of accessibility; 2) An ongoing emphasis on technology to make the fund easier to use; and 3) Education and promotion of best practices.

Linking investments with checking accounts
“From day one, the fund broke new ground for accessibility. Allowing a bank trust to function as an investment account was a huge first.  We took another major step forward in 1989 with the introduction of the Link program, which became one of the first electronic sweep accounts. It established a direct link between a school’s Short Term Fund account and its commercial checking account. So, taking the long view, a major breakthrough for the Short Term Fund was getting away from the notion that investments are something separate and distant from actual day-in, day-out cash management. Instead of being separate, the Short Term Fund became the nucleus. For the first time, education operated in a world that revolved around the investment rather than the transaction.”

Leading the way into today’s online environment
“In technology, the Short Term Fund was very early in its introduction of leading edge services. In 1993, Commonfund Treasury introduced TCF Online for the Short Term Fund. Notably, it was one of the very first desktop solutions for moving funds and monitoring current-day activity. We followed with Treasury Access in 1996. It was one of the very first electronic tools for performing commercial transactions over the Internet. At that time, our Internet capabilities were at least a year or two ahead of most commercial banks, and helped to make data access and transactions a matter of point-and-click for speed and convenience. More importantly, Treasury Access today provides a central platform that makes it possible to consolidate and maximize working capital funds. Concentrating daily cash in the Short Term Fund gives clients better cash control as well as the potential for capturing enhanced returns.”

Investing in the future through education
“Commonfund’s original charter to conduct research and publishing in order to promulgate best practices among educational institutions was a part of the Short Term Fund’s heritage. Built into the genes, if you will. The fund itself was a new way of thinking about operating cash, so it was inevitable that teaching people a different behavior would become a de facto part of the fund’s mission. Officially, Commonfund began sponsoring the National Cash Management Seminar in 1989. It was the very first conference exclusively for higher education treasury, and it continued through 1997. Two years later, Commonfund was a founding partner of the Treasury Institute for Higher Education to foster best practices and sharing of thought leadership. Of course, education is central to that mission. Some 150 leading treasury professionals attend the Institute’s annual conference. And, the Institute sponsors a master’s level program in treasury management in conjunction with Purdue University. There’s no doubt that efforts such as these have elevated the profession.”

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