PRESBYTERIAN ENDOWMENT SERVICE

Transcription

1 PRESBYTERIAN ENDOWMENT SERVICE PRESBYTERIAN ENDOWMENT SERVICE Photo: Erin Dunigan A SERVICE DESIGNED SPECIFICALLY FOR LONG-TERM INVESTING OF FUNDS 1

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3 Overview Endowments provide for the best of ministry today and for future generations. They can provide needed funding when times are hard, and seed money for new efforts when times are good. Endowments preserve legacies of faithful Christians through the ages, and build up the body of Christ for years to come. These are just a few of the reasons why careful stewardship of a church s endowment and other long-term savings is so important. When managed well, an endowment fund can grow over time while providing a steady and predictable stream of funding, which also grows to keep pace with inflation. The Presbyterian Foundation has been a trusted partner to congregations from the time of its establishment in Today we steward more than 7,000 permanent endowment funds, valued at nearly $ 700 million, which generate $ 37 million each year for the mission and ministry work of congregations, mid councils, children s homes, retirement centers, seminaries and schools, and so many other organizations created by Presbyterians to do God s work in the world. The Foundation has engaged Cambridge Associates, a leading investment advisor for charitable and educational foundations, as the investment advisor to the Foundation endowment funds. A New Endowment Investment Service The Presbyterian Endowment Service offers access for your endowment or other long-term funds to the Foundation s investment management services. This managed pool of institutional investments is designed to produce income now and for generations to come, using experienced investment managers and a spending formula based on total return policy. Funds are managed according to a diversified policy established by the Presbyterian Foundation Investment Committee. The Presbyterian Endowment Service utilizes world class managers which are typically only available to the largest of investors. The Presbyterian Endowment Service enables you to: Retain title to your organization s funds Access the Presbyterian Endowment Service which is advised by Cambridge Associates Diversify into multiple asset classes Utilize Spending Formula Guidance and Implementation Invest in compliance with the Social Witness Principles of the Presbyterian Church (USA). 3 3

4 Financial & Investment Objectives The Investment Committee of the Presbyterian Church Foundation Board of Trustees has defined a set of financial and investment objectives for the Presbyterian Endowment Service: The Financial objective of the fund is to: provide a stream of relatively stable and constant earnings in support of annual spending; and preserve and enhance the real (inflation-adjusted) purchasing power of the Fund. The investment objective of the fund is to attain a real total annualized return of at least 5.5%, net of investment expenses, on average, over a five to seven year period. Secondary objectives are to: 1) outperform the Fund s long-term investment policy benchmark; and 2) outperform the median return of a pool of endowment funds with broadly similar investment objectives and policies. Long-Term Investment Policy In order to provide the greatest likelihood of achieving these objectives, the Investment Committee has established a long-term investment policy. This investment policy is oriented around four key types of portfolio exposure. It is expected that the allocation of capital across these four types of exposures will be the most important driver of long-term returns for the Endowment Fund. Capital Appreciation strategies provide growth of principal that more than offsets inflation. Pursuit of this objective entails the assumption of variability in price and returns. Examples include public equities (domestic and foreign), private equity (venture capital, buyouts, etc.) and market-sensitive hedge funds (long-biased long-short equity managers). Diversifying strategies provide equity-like returns over a full market cycle with low equity correlation and lower levels of risk than Capital Appreciation strategies. Examples include event-driven and relative value hedge funds, as well as long-short equity managers with relatively less exposure to equity markets. Inflation Sensitive strategies provide potential protection in periods of severe inflation. Examples include commodities, Treasury Inflation Protected Securities, core private real estate and private upstream oil and gas. Deflation Hedging strategies provide some appreciation in periods of declining interest rates (especially in periods of significant equity drawdowns), and to provide ready liquidity. 4 4

5 Funds Management Your organization will retain title to the assets placed in the Presbyterian Endowment Service. The Presbyterian Foundation provides complete fiduciary oversight of the Presbyterian Endowment Service and is governed by the approved Investment Policy Statement from our Board of Trustees. The Presbyterian Endowment Service is invested in a portfolio which is diversified across asset classes, investment managers, and economic regions. Diversification provides the benefits of participating in up markets while also providing reduction of volatility in down markets. The portfolio is equity oriented with representation in capital appreciation, diversifiers, inflation hedges, and deflation hedges categories. Presbyterian Foundation Endowment Fund Asset Allocation Philosophy - Investment Strategies & Their Roles Asset Classes Role Goal { { { Capital Appreciation Equity-oriented assets are drivers of portfolio growth But need to diversify away from public equity risk PE/VC enhances returns Long-short equity hedge funds mitigate volatility Public Equitites Private Equity & Venture Capital Long-short Equity Hedge Funds Maximize Return at an Appropriate Level of Risk Hedge against Catastrophic Macroeconomic Risk Deflation Fixed Income (High quality, Intermediate to Long-term Non-callable Bonds) Inflation Real Assets (Commodities, Natural Rsource Equities, REITs, Private Real Estate, Private Natural Resources) Diversification Use absolute return, eventdriven strategies to provide diversification and reduce volatility from groth-oriented strategies Absolute Return Hedge Funds Multi-strategy Event-driven Hedge Funds Distressed Hedge Funds The Endowment Fund strategic asset allocation will be implemented in compliance with the social witness principles of the General Assembly of the Presbyterian Church (U.S.A.). Note: Asset classes and their roles are blurred with some investments serving multiple roles in the portfolio. 5 5

6 Implementation Philosophy The Presbyterian employs several philosophical tenets for constructing the Presbyterian Endowment Service and adding value above the long-term investment policy: The Fund will be invested in accordance with the social witness principles of the Presbyterian Church (USA). Active management will lead to strong returns. Manager selection is the key driver of outperformance over the long-term investment policy benchmark. The Presbyterian Foundation Investment Team favors boutique, bottom-up, fundamental investor managers with a consistent, repeatable, differentiated, and transparent investment process. The team avoids managers that use leverage significantly higher than their strategy requires, or pursue trading-oriented, highly complex or quantitative ( black box ) strategies. Individual investment manager positions are conviction weighted and value-biased in aggregate. Hedge funds provide a differentiated source of return and downside protection. These funds are expected to offer equity-like returns over a full market cycle with two-thirds of the volatility. Private investments enhance portfolio returns. The team targets private investments that will generate a premium over public market alternatives. Portfolio illiquidity is closely monitored and explicitly capped in investment policy guidelines. Valuation-driven tactical portfolio tilts can be additive. This source of return is secondary in importance to manager selection. The Presbyterian Endowment Service does not engage in wholesale market timing based on short-term views or market momentum. 6 6

7 Investment Vehicle The Presbyterian Endowment Service is a common trust fund designed to provide income now and for generations to come. This fund will be invested in the same investment vehicle that is used by the Presbyterian Foundation for all the endowment funds we steward for the benefit of churches and other related organizations. The Investment advisor is Cambridge Associates based in Boston with over $1 trillion in assets under advisement, over 1,000 associates worldwide and over 900 clients. Cambridge is a leading advisor to mission based non-profits for nearly 40 years with a proven long term track record of investment results and has a lifelong commitment to nonprofits while serving more than 70% of US college and university assets and 40% of foundation assets. It is unbiased and independent as it receives no fees from money management firms. Cambridge provides true customization of the portfolio with day to day oversight by a specialized team of consulting professionals dedicated to the account. As an industry advocate for innovation, Cambridge provides deep and broad research resources to enable our team to focus on the best ideas and practices for the fund. It applies an understanding of risk exposures to set appropriate levels of risk accordingly. Cambridge believes there are three principles for reaching objectives for the fund. 1. Discipline is required on all sides, from policies and goals set with the Foundation, to the processes used for support, implementation and oversight. 2. Successful investment processes include a clear set of objectives and policies with sufficient resources for effective implementation. 3. Customization plays an important role because there is no single right model for all institutions. 7 7

8 Mission Responsibility through Investment The Presbyterian Foundation seeks to invest the assets entrusted to us as a fiduciary in accordance with the social witness principles of the Presbyterian Church (USA). The social witness principles do not call for broad based divestment and proscription, although the denomination does maintain a list of securities prohibited for investment. Rather, the Presbyterian Church (USA) models a symbolic witness to the denomination, which generates awareness and dialogue, and is not an attempt at perfection but instead that of being faithful. Using proxy voting and shareholder advocacy as well as dialogue with corporate managements, the denomination encourages change from within as the most effective method with divestment as a last resort. Cambridge is required to comply with Mission Responsibility Through Investment as part of its mandate from the Foundation. In recent years, Cambridge clients have increasingly sought to align their investments with their institutional mission and values. Cambridge established a dedicated group to work with clients on social responsibility. The focus includes helping clients make informed decisions in the broad area of social responsibility, assisting with strategies for achieving socially responsible goals and expansion of quality institutional managers in the socially responsible arena. Cambridge actively monitors and influences industry trends that could have meaningful impact on socially responsible investments. 8 8

9 Distributions and Withdrawals Distributions from the Fund will follow the spending formula adopted by the Foundation for the endowment funds which it stewards. The spending formula policy is a Total Return Policy and provides a predictable level of payments to the charitable beneficiary over time while keeping the principal value at or above the level of inflation. This allows us to distribute both income and a portion of the capital appreciation in the endowment fund to today s beneficiaries while preserving the long-term purchasing power of the funds for the future. This formula also dampens significant peaks and valleys that market performance can have on payouts so beneficiaries are not as directly tied to the highs and lows of market performance. Distributions will be made quarterly directly into the account at your preferred financial institution. You may elect to have distributions reinvested for a set period of time or until your fund reaches a predetermined amount. Your organization may also request withdrawals from the fund in addition to the regular distributions. These withdrawals are allowed quarterly with a 30 day notice. The fund will make 80% of withdrawal request payment after quarter end; the remaining amount will be made after final Net Asset Value has been determined; this is typically six months later due to use of alternative investments where valuation is delayed and may require time to liquidate. Total withdrawals from the fund will not exceed net cash inflows and 5% of the entire fund. During periods of extreme market disruption or significant requests for withdrawals, or any case in which the Foundation reasonably determines that the interests of the Fund investors might be harmed, the Foundation may, at its discretion, institute a partial or full moratorium on withdrawals. During this period, the Foundation may take actions such as the creation of a new liquidation fund, a pro-rated in-kind distribution, a staged withdrawal to allow an orderly liquidation of the Portfolio Securities to minimize the realization of potential losses on the remaining Fund shareholders and any other action it deems appropriate to mitigate a disproportionate or unfair effect on any Fund shareholder. 9 9

10 Account Access The Presbyterian Endowment Fund performance and asset allocation will be posted to the Foundation website monthly. Monthly or quarterly statements you decide the frequency. Statements can be viewed online by you and other committee members. We encourage the use of online access for its timeliness and availability to all interested parties. If you prefer, paper statements can be sent in the mail. On-line viewing of account balances available for you and/or other committee members. Withdrawal from the account online is not available. Performance and asset allocation for the Fund is posted online monthly. Fees and Deposits The minimum investment in the Presbyterian Endowment Service is $ 1 million. The annual administration fee is 1.25% of assets under management. Deposits are allowed quarterly with 30 days notice. Opening an Account To open an account in the Presbyterian Endowment Service, please contact Anita Clemons, Vice President, Investment Relationship Officer at or Anita.Clemons@presbyterianfoundation.org

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12 200 East Twelfth Street Jeffersonville, IN FDN