Advice for investment ­committee members

Dana R. Consler, BridgeTower Media Newswires

The Nov. 29 edition of the Wall Street Journal carried an article entitled “Charities Lag Behind as Asset Managers” (Page B-2). Its conclusion was that “…while many nonprofits promote great causes, few are great at managing money.”

The author referenced a research paper written by two finance professors at Georgetown University and New York University. Their research, taken from Internal Revenue Service data, estimated the returns from 2009 through 2016 of almost 29,000 endowment funds of colleges, universities, museums, hospitals and other organizations. Their total investment assets were $662 billion as Dec. 31, 2016.

Over that eight-year period, the endowment funds were estimated to have earned an average 6.7% annual return net of fees, compared with a 10.5% return for a hypothetical 60%/40% mix of stocks and bonds. The 6.7% return was well below that of either the broad U. S. stock or long term bond market over the period also.

My professional experience with non-profit investment committees spans 30 years, at least four bear markets and numerous economic expansions and recessions. Committees have a difficult task. The investment markets, best portfolio strategies and the tools available to them are continuously evolving.

Here are my thoughts for non-profit investment committees on how they might improve their chances of delivering better future performance than, perhaps, they have achieved in the past.


Committee starts with “commit”

A committee’s effectiveness begins with energy and dedication from its members. Understand the history, mission and resources of the organization in the context of the investment portfolio. Meet regularly, come prepared and be intellectually curious.


Strive for experience and diversity

Having experienced investment professionals on the committee is a must. The perspectives of a CPA, banker and business owners can be valuable, too.


Eliminate conflicts of interest

If a committee member, their family or business enjoys an economic benefit from committee decisions, they are conflicted. Each member should sign a conflict of interest statement to ensure transparency and avoid awkward entanglements.


Develop and update an Investment Policy Statement (IPS)

You should prepare and revisit periodically an IPS setting out guidelines for investment policies, asset allocation, how performance will be evaluated and how/why managers will be hired or fired.
Responsibilities of the committee, board and investment advisors should be spelled out as well.


Hone skills in manager selection and evaluation

Probably your most challenging responsibility — and where your efforts can be most rewarding to the organization — is manager selection and evaluation.

Understand what managers do and don’t do, their core competencies and their role within your portfolio. How they navigate through bear market periods is critically important to long-term investment success.


Undertake regular reviews of investment advisors and other consultants

Spell out expectations for advisors or consultants and provide them regular feedback. Smart committees understand the factors that drive manager performance and can quantify the amount of risk being taken.

These thoughts are merely a starting point. Extensive information can be found on the internet by searching topics such as “non-profit committees,” “choosing an investment advisor” or “fiduciary responsibility.”

Two excellent books were written by Russell L. Olson, who for many years was the executive responsible for oversight of the Eastman Kodak Pension Plan. He was very highly regarded in the investment community nationally. They are “The Handbook for Investment Committee Members” and “The Independent Fiduciary.”

I highly recommend both to all investment committee members who are serious about their role and responsibilities.


Dana Consler is executive vice president of Karpus Investment Management, a local fee-based, SEC-registered investment advisor managing over $3 billion of assets for individuals, corporations, retirement plans, IRAs, non-profits, unions and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534, (585) 586-4680. He has been a regular contributor to The Daily Record for 20 years.