Top Ten Insights for Foundation Investors in a Mature Market

October 17, 2017  | by Catherine Keating

Governance and Policy | Industry Knowledge | Investment Strategy | Responsible Investing

Last week I had the honor of moderating a panel at the 2017 Council on Foundations Endowments & Finance Summit. In the session, “Foundation Investing in Mature Markets: Challenges and Rewards,” I was joined by three esteemed colleagues, representing foundations with over $3 billion in endowed assets and close to three centuries of combined history. My colleagues: Mary Greenebaum, CIO, New York Community Trust; Sherry P. Magill, PhD., President of the Jessie Ball duPont Fund; and Jeremy Tennenbaum, CFA, Chief Financial Officer of the Altman Foundation.

Each of these institutions is a pillar of its community, supporting programs that enrich quality of life and help those in our society that are most in need. The ongoing health of their endowed assets is critical to their ability to support their missions and maintain grant making through market cycles.

While we know that bull markets don’t “die of old age,” we also know that they don’t last forever...

From left: Sherry P. Magill, PhD., President of the Jessie Ball duPont Fund; Jeremy Tennenbaum, CFA, Chief Financial Officer of the Altman Foundation; Mary Greenebaum, CIO, New York Community Trust; and Catherine M. Keating, President and Chief Executive Officer of Commonfund.

This session was particularly timely, given the state of the economy and capital markets. We are now in the ninth year of the post-financial crisis expansion and U.S. equity markets are at all-time highs. While we know that bull markets don’t “die of old age,” we also know that they don’t last forever. A correction is inevitable. Our discussion was wide-ranging, covering topics from investment policy, to program-related investing (PRI), to the role of hedge funds in long-term portfolios. Following is my distillation of the top ten investment insights shared by our panelists for this mature phase of the market cycle.

1. Rebalance the portfolio

Institutions have policy guidelines that protect them from the behavioral mistakes of other investors – make sure to follow them.

2. Raise cash for 2018 grants

Having cash on hand to cover one year of grants provides an invaluable cushion against having to redeem at an inopportune time.

3. Consider shortening multi-year grant periods

Given the focus and commitment to the mission, this can be difficult, but may be a prudent strategy.

4. Spend less than 5%

If you have excess distribution carryforwards take advantage of them.

5. Manage costs

We can’t control the markets but we can control our costs. Every dollar saved can help to fund the mission.

6. Review return assumptions

Confirm that your assumptions are still reasonable and make sure to be looking forward instead of back.

7. Understand key risks

Define the key risks for your organization and make sure to socialize them with the investment committee and your board. It’s also a good idea to conduct scenario tests before a crisis happens so that everyone knows and agrees on what steps will be taken when the time comes.

8. Evaluate PRIs

Program related investments can be an effective way to place loan capital in the community and further the mission.

9. Align investments to mission

This can range from investing in a facility that serves your constituents to aligning investments with your institution’s environmental, social, and governance (ESG) goals.

10. Source liquidity

Understand the liquidity constraints imbedded in the portfolio and think creatively about how to source liquidity if the need arises, including possible use of credit lines.

This is list is by no means exhaustive but it is an appropriate place to start. As Alexander Graham Bell said, “Before anything else, preparation is the key to success.”

Authors

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Catherine Keating is the President and CEO of Commonfund. Founded in 1971, Commonfund is the leading asset manager focusing principally on nonprofit investors. Prior to Commonfund, Catherine held a variety of senior positions at J.P. Morgan, including Head of Investment Management Americas, CEO of the U.S. Private Bank, and member of the Executive Committee, the company’s senior leadership group. Prior to joining J.P. Morgan, Catherine was a Partner in the international law firm of Morgan, Lewis & Bockius LLP. She is a frequent author and speaker on investment topics, and has been featured in interviews appearing in Businessweek, The Wall Street Journal, Barron′s, The Financial Times, and Institutional Investor, among others, and has appeared on CNBC, Fox and Bloomberg TV. She has been named one of the Most Powerful Women in Finance and one of the Most Powerful Women in Banking by American Banker. Catherine is a member of the Council on Foreign Relations and The Economic Club of New York. She also serves on the boards of Santander Holdings USA, Inc., The University of Virginia Law School Foundation, the Girl Scouts of Greater New York and the Inner-City Scholarship Fund. She previously served for eleven years on the board of Villanova University, including two years as Chair. She earned a J.D. from the University of Virginia School of Law and a B.A. from Villanova University.
Catherine M. Keating
President and Chief Executive Officer
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Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.