PRECURSORS TO EFFECTIVE ENDOWMENT INVESTING Darren B. Moore B - - PowerPoint PPT Presentation

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PRECURSORS TO EFFECTIVE ENDOWMENT INVESTING Darren B. Moore B - - PowerPoint PPT Presentation

Nov 02, 2022 242 likes •428 views

PRECURSORS TO EFFECTIVE ENDOWMENT INVESTING Darren B. Moore B OURLAND , W ALL & W ENZEL , P.C. 301 Commerce Street, Suite 1500 Fort Worth, Texas 76102 (817) 877-1088 (817) 877-1636 (facsimile) E-mail: dmoore@bwwlaw.com WHAT IS AN

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SLIDE 1

PRECURSORS TO EFFECTIVE ENDOWMENT INVESTING

Darren B. Moore

BOURLAND, WALL & WENZEL, P.C. 301 Commerce Street, Suite 1500 Fort Worth, Texas 76102 (817) 877-1088 (817) 877-1636 (facsimile) E-mail: dmoore@bwwlaw.com

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SLIDE 2

WHAT IS AN ENDOWMENT?

  • Do no r’ s vie w
  • Ac c o unta nt’ s vie w
  • Bo a rd’ s vie w
  • L

a wye r’ s vie w

  • “T

rue ” e ndo wme nts vs. “Qua si-e ndo wme nts”

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SLIDE 3

RATIONALES FOR HAVING AN ENDOWMENT

  • I

nte rg e ne ra tio na l e q uity

  • Co ve r re ve nue sho rtfa lls
  • Assure c o ntinua tio n o f missio n/ re puta tio n/ va lue s
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SLIDE 4

COMMON LAW FIDUCIARY DUTIES Duty o f Ca re Duty o f L

  • ya lty

Duty o f Ob e die nc e

4

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SLIDE 5

REASONABLY PRUDENT

Pr udent Not pr udent

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SLIDE 6

DEVELOPMENT OF THE LAW OF PRUDENCE

E ng lish Rule Prude nt Man Rule Mo de rn Po rtfo lio T he o ry/ T

  • tal

Re turn Po lic ie s

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SLIDE 7

THE “LEGALIZATION” OF MODERN PORTFOLIO THEORY

1969 •PF

I nve stme nt Rule s

1974 •E

RI SA

1972 •UMI

F A

1994 •Unifo rm Prude nt I

nve sto r Ac t

1994 •Unifo rm Princ ipa l & I

nc o me Ac t

2006 •UPMI

F A

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SLIDE 8

UPIA

  • “A truste e sha ll inve st a nd ma na g e trust a sse ts a s a pr

udent

inve sto r wo uld, by c o nside ring the purpo se s, te rms, distrib utio n re q uire me nts, a nd o the r c irc umsta nc e s o f the trust.”

  • I

n sa tisfying the Prude nt I nve sto r Rule , the truste e must e xe rc ise

r easonable car e, skill and caution

  • I

nve stme nt a nd ma na g e me nt de c isio ns re g a rding individua l a sse ts must b e e va luate d in the c o nte xt o f the por

tfolio as a whole, a nd a s pa rt o f a n o ve ra ll inve stme nt stra te g y ha ving r isk and r etur n objectives r easonably suited to the tr ust

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SLIDE 9

UPIA

  • T

ruste e sha ll diver

sify the inve stme nts o f the trust unle ss

the truste e re a so na b ly b e lie ve s tha t spe c ia l c irc umsta nc e s ne c e ssita te o the rwise

  • T

ruste e ma y delegate ma na g e me nt/ inve stme nt func tio ns, b ut must e xe rc ise re a so na b le c a re , skill a nd c a utio n in:

  • Se le c ting a n a g e nt
  • E

sta b lishing the sc o pe / te rms o f de le g a tio n (c o nsiste nt with trust te rms/ purpo se )

  • Pe rio dic a lly re vie wing a g e nt’ s a c tio ns to mo nito r

pe rfo rma nc e / c o mplia nc e with de le g a tio n te rms

  • Ag e nt o we s duty o f re a so na b le c a re to c o mply with

the te rms o f the de le g a tio n

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SLIDE 10

UPMIFA

  • Unifo rm la w g o ve rning ma na g e me nt, inve stme nt, a nd

e xpe nditure o f funds he ld b y c ha rita b le o rg a niza tio ns within its sc o pe .

  • I

nte nde d to mo de rnize the rule s fo r e xpe nditure s fro m

endowment funds a nd upda te pro visio ns g o ve rning the

re le a se a nd mo dific a tio n o f re stric tio ns o n c ha rita b le funds.

  • Sta nda rd o f Ca re : Ordina ry b usine ss c a re a nd pr

udence

unde r the fa c ts a nd c irc umsta nc e s pre va iling a t the time

  • f the a c tio n/ de c isio n
  • Prude nc e sta nda rd c o nsiste nt with the UPI

A

10

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SLIDE 11

UPMIFA

  • E

ndo wme nt spe nding re stric tio ns a pply to c e rta in e ndo wme nts (va rying de pe nding o n size o f e ndo wme nt)

  • Re quire s diver

sification, unle ss spe c ia l

c irc umsta nc e s e xist

  • Must e va lua te inve stme nt in c o nte xt o f

por tfolio as a whole

  • Ve rify fa c ts (due dilig e nc e )
  • Ca n delegate inve stme nt/ ma na g e me nt o f

fund

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SLIDE 12

STATE LAW STANDARDS OF PRUDENCE

  • Circ umsta nc e s to c o nside r in whe the r to ma ke a

pa rtic ula r inve stme nt (UPI A/ UPMI F A):

  • Ge ne ra l e c o no mic c o nditio ns
  • Po ssib le e ffe c t o f infla tio n o r de fla tio n
  • E

xpe c te d ta x c o nse q ue nc e s o f inve stme nt de c isio ns

  • Ro le tha t e a c h inve stme nt/ stra te g y pla ys within po rtfo lio
  • E

xpe c te d to ta l re turn

  • Othe r re so urc e s o f the c ha rity
  • Ne e ds fo r liq uidity, re g ula rity o f inc o me , a nd pre se rva tio n
  • r a ppre c ia tio n o f c a pita l
  • An a sse t’ s spe c ia l re la tio nship o r spe c ia l va lue , if a ny, to

the purpo se s o f the trust o r to o ne o r mo re o f the b e ne fic ia rie s

  • T

he inve stme nt po lic y sta te me nt o f the c ha rity

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SLIDE 13

DRAFTING TIPS COMMON TO ALL POLICIES

  • I

nvo lve the Bo a rd (the y’ re a do pting it!)

  • Use unde rsta nda b le la ng ua g e / de fine te rms
  • Co o rdina te te rms with pro visio ns o f g o ve rning

do c ume nts

  • Do n’ t try to b e No stra da mus
  • Do n’ t c re a te so me thing yo u wo n’ t fo llo w
  • Cre a te a syste m fo r a nnua l re vie w a nd upda te a s

ne c e ssa ry

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SLIDE 14

SETTING A SPENDING POLICY

  • Wha t a re the o b je c tive s to b e me t? (ra tio na le s fo r

e ndo wme nt)

  • Wha t a re the c ha rity’ s funding ne e ds?
  • Co nside r smo o thing b y inc luding use o f ro lling

a ve ra g e fo r c a lc ula ting va lue o f e ndo wme nt

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SLIDE 15

CREATING AN INVESTMENT POLICY STATEMENT

  • Wha t is the purpo se / o b je c tive o f the e ndo wme nt?
  • Wha t a re the c o nstra ints o r g ua rdra ils to sta y within?
  • Wha t type o f inve stme nt struc ture / a sse t a llo c a tio n

ma ke se nse b a se d o n o b je c tive s/ c o nstra ints/ risk to le ra nc e ?

  • Ho w will the c ha rity mo nito r pe rfo rma nc e ?
  • Wha t will b e the ro le s o f the Bo a rd? T

he I nve stme nt Co mmitte e ? T he o utside pro fe ssio na ls?

  • Wha t will b e the pro c e ss to re vie w the po lic y fo r

c o mplia nc e a nd ne c e ssa ry a djustme nt?

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SLIDE 16

WE HAVE AN IPS, NOW WHAT?

  • 1. Se le c t a ppro pria te inve stme nt ma na g e rs
  • Ba c kg ro und c he c ks/ I

nte rvie ws/ Re fe re nc e c he c ks

  • Ana lyze o pe ra tio na l/ b usine ss struc ture
  • 2. Mo nito r the inve stme nt pe rfo rma nc e pe r the I

PS (utilize a ppro pria te b e nc hma rks)

  • Ask q ue stio ns/ se e k to unde rsta nd stra te g y a nd risks
  • Co nside r ho w risk is b e ing ma na g e d in re la tio n to o b je c tive s
  • 3. Re b a la nc e a s a ppro pria te o ve r time
  • 4. Pe rio dic a lly re vie w po lic y
  • 5. F
  • llo w c o nflic t o f inte re st po lic y in inve sting
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SLIDE 17

T he info rma tio n se t fo rth in this o utline sho uld no t b e c o nside re d le g a l a dvic e , b e c a use e ve ry fa c t pa tte rn is uniq ue . T he info rma tio n se t fo rth he re in is so le ly fo r purpo se s o f disc ussio n a nd to g uide pra c titio ne rs in the ir thinking re g a rding the issue s a ddre sse d he re in. No n-la wye rs a re a dvise d to c o nsult a n a tto rne y b e fo re unde rta king a ny issue s a ddre sse d he re in. Unle ss o the rwise sta te d he re in, pursua nt to re q uire me nts pre sc rib e d b y the I nte rna l Re ve nue Se rvic e unde r Circ ula r 230 fo r ta x pra c titio ne rs, Bo urla nd, Wa ll & We nze l P.C. must info rm yo u tha t a ny U.S. fe de ra l ta x a dvic e o r o pinio ns c o nta ine d in this pa pe r a re no t inte nde d o r writte n to b e use d, a nd c a nno t b e use d, fo r the purpo se o f a vo iding pe na ltie s unde r the I nte rna l Re ve nue Co de o r pro mo ting , ma rke ting o r re c o mme nding to a no the r pa rty a ny tra nsa c tio n o r ma tte r a ddre sse d in this c o mmunic a tio n.

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