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Investment Management
Principle 1: Objectives

March 11, 2016  | by Commonfund Institute

Governance and Policy | Industry Knowledge | Investment Strategy

The responsibilities of those charged with oversight of a long-term investment fund such as an educational, religious or charitable endowment, foundation, hospital asset pool or pension fund differ fundamentally from those of other investment fiduciaries. The differences arise primarily from the nature of these funds’ beneficiaries.

In this 7-part series, we’re going to discuss key issues and essential principles of investment management. We’ll start with Principle #1: Objectives.

 

Essential Principle

The board, in consultation with the institution’s administration, should determine the objectives of the fund and the policies that will guide its management, explain them in a written statement, and periodically review and update the statement.

 

Defining and Measuring Success

Trustees or governing board member’s experience mainly lies in the private sector are accustomed to thinking of financial objectives in terms of net profit, return on investment, and shareowner value, all of which are measurable in quantitative terms. In their roles as fiduciaries of a fund, however, they have to measure success against more subjective goals.

The terms may resemble those used in business; profit and growth certainly have relevance to the management of an organization’s endowment or pension fund. But in this environment, success has very different implications.

First and foremost, It must be understood in terms of the social purpose and utility of the institution (taken here to include a mutual benefit institution such as a pension fund), however intangible that may seem. Additionally, it must be viewed in a time frame that is much more extended than those normally considered in business.

Moreover, when planning investment policy for a fund, the trustees must first start with an understanding of the institution’s charter and its mission. And against that background they must proceed to review the condition of the institution and its short-, medium- and long-term needs.

 

Get It In Writing

These deliberations are best carried out in a formal legislative manner, with the resulting policy expressed in writing. The members of the board may represent various backgrounds, points of view and priorities. As in any such deliberative body, the final result—a written investment policy statement—will, in most cases, reflect the give and take of negotiation and compromise.

Your institution’s investment policy statement should bring these varied perspectives to a resolution, providing a written guide for the management of the fund. Thus, before assets are allocated or investments selected, the trustees, through their policy-making, make the most significant contribution to the achievement of their objectives.

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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.