2015 Nonprofit Accounting & Audit Update The Road to Better Governance

Transcription

1 2015 CliftonLarsonAllen Wealth Advisors, LLC 2015 Nonprofit Accounting & Audit Update The Road to Better Governance June 10, 11 & 12, 2015 CLAconnect.com/privateclient Steven Jones, CFA, CFP, CAIA Director, Institutional Investment Services direct mobile

2 Steven D. Jones, CFA, CFP, CAIA Director, Institutional Investment Services & Private Investment Research CliftonLarsonAllen Wealth Advisors, LLC PROFILE Steven is the Director of the Institutional Investment Services and Private Investment Research at CliftonLarsonAllen Wealth Advisors, LLC. He has over thirty years of investment management experience with expertise in all major asset classes. He specializes in asset/liability management, macroeconomic analysis and asset allocation strategies. EXPERIENCE IN SERVING CLIENTS Steven s career began in 1981 as a fixed income analyst and securities trader for a major trust company in St. Louis. In 1990, he began serving institutional clients as a portfolio manager. In 2006, he joined LarsonAllen Financial and expanded his client facing skills to include high net worth individuals. In 2009, Steven joined Hammond Associates as a Senior Investment Consultant where he served foundations, endowments, healthcare and high net worth clients. Hammond Associates was acquired by Mercer in In 2013, Steven rejoined CliftonLarsonAllen Wealth Advisors to help lead the organization s institutional business efforts and their private investments research. EDUCATION/PROFESSIONAL INVOLVEMENT Steven is a CFA charterholder and serves on the board of the CFA Society of St. Louis. He also holds the following designations: Chartered Alternative Investment Analyst (CAIA) and the Certified Financial Planner (CFP). Steven received his MBA from Washington University in St. Louis and his BSBA from the University of Missouri-Columbia, where his major was Finance & Banking. SPECIAL INTERESTS Steven currently resides in St Louis with his wife. His two daughters attend the University of Missouri-Columbia. Steven is an active member of the St. Gerard parish. He likes to ride bikes with his wife on the many trails in-and-around St. Louis. Steven s hobbies include guitar, singing, exercising, movies and watching the Rams and Cardinals. CONTACT INFORMATION Mobile steven.jones@claconnect.com CLAconnect.com/privateclient

3 Disclosures CliftonLarsonAllen Wealth Advisors, LLC ( CLA Wealth Advisors ) is an SEC Registered Investment Advisor that offers a wide array of private wealth advisory services. For more information about CLA Wealth Advisors business practices, fees, and services, please refer to our Form ADV Part 2A (the Disclosure Brochure ). Your investment professional must provide you with a copy the Disclosure Brochure before or at the time when you enter into a legal agreement with us. Performance can not be guaranteed and any references to past specific performance should not be interpreted as a promise to achieve results. Investing involves various degrees of risk. You may lose money, including the principal of your investment. Please note that rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if CLA Wealth Advisors is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of CLA Wealth Advisors by any of its clients. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized advisor. 3

4 The Road to Better Governance Starts by Focusing on What Can Be Controlled Fiduciaries have control over the following three factors: 1) Risk 2) Diversification 3) Fees Fiduciaries should act prudently and weigh the above issues carefully in order to construct an efficient portfolio. Fiduciaries should develop and maintain proper documentation to support their decisions. Return Expectations are residual & systematic. 4

5 Understanding Risk To earn a return, an investment must be exposed to some form of risk (expressed as volatility). Every investor faces the daunting challenge of determining their optimal risk/return trade-off. 5

6 Understanding Risk I. Qualitative Measures - Risk Tolerance Questionnaires & Surveys Sample question: By how much would the total value of your investments decline before you would want to sell? a) -5% b) -10% c) -20% d) -30% II. Quantitative Measures - Cash Flow Analysis Time Horizon - Asset/Liability Management Techniques I. Cash Reserve II. Cash Matching III. Duration Matching IV. Monte Carlo Simulation V. Financial Stress Testing 6

7 Understanding Risk The Linear Relationship Between Risk & Return Risk, as measured by the 10 Year Standard Deviation Source: Envestnet 7

8 Investment Portfolio Construction An Introduction to the Risk/Return Graph Where is your portfolio on this axis? Where is your portfolio on this axis? 8

9 Understanding Risk The Risk/Return Trade-off Return is a long-term consideration Risk is a short-term consideration Assumes: 6.5% Mean Return 14% Std Dev 9

10 Understanding Risk Stress Testing 10

11 Understanding Diversification 11

12 Understanding Diversification The Opportunity Set Risk Reduction Assets dampen overall portfolio volatility through their own low volatility and by having a low correlation to Growth Assets. Investment Grade Credit Cash Municipal Debt Barclays Capital Aggregate Opportunistic Risk Reduction High Yield Unconstrained Emerging Market Debt Multi-Asset Manager Alternative Risk Aleatory Beta-Delta-Beta Idiosyncratic Private Debt Direct Lending Special Situations Real Assets 12% TIPS 5% Alternative Risk 11% High Yield 8% Cash 5% Investment Grade 13% US Equity 23% Int'l Developed Mkts 15% Int'l EM 8% Inflation Protection Assets help protect a portfolio from unanticipated inflation. Liquid Real Assets TIPS REITs MLPs Energy & Commodity Stocks Managed Futures Private Real Assets Real Estate Energy, Mining and Minerals Growth Assets generate returns based on growth of the world economy. US Equity Large Cap Small Cap International Equity Developed Markets Emerging Markets Frontier Markets Private Equity Venture Capital Buyouts Mezzanine Financing Distressed Debt 12

13 Understanding Diversification Law of Diminishing Returns Source: Envestnet 13

14 Understanding Diversification Correlation (Ranges from -1 to +1) High Low Source: Morningstar 14

15 Understanding Diversification The Efficient Frontier Efficient Frontier Source: Envestnet 15

16 Understanding Fees 16

17 Understanding Fees Does Active Management Pay? Over time, active managers perform no better than what would be expected by pure luck. But, active managers cost significantly more than passive managers. 17

18 Return Expectations are Residual and Systematic 18

19 Return Expectations are Residual & Systematic Influenced by the Amount of Risk, Diversification and Fees Short-term forecasts are not as accurate as long-term forecasts. Source: Envestnet 19

20 Conclusion 20

21 In Conclusion Better Governance Starts by focusing on: Return Target = 8.5% #3 Fees #2 Diversification #1 Risk Budget 21

22 In Conclusion Improved Compliance with UPMIFA In managing and investing an institutional fund, the following factors, if relevant, must be considered: (A) general economic conditions; (B) the possible effect of inflation or deflation; (C) the expected tax consequences, if any, of investment decisions or strategies; (D) the role that each investment or course of action plays within the overall investment portfolio of the fund; (E) the expected total return from income and the appreciation of investments; (F) other resources of the institution; (G) the needs of the institution and the fund to make distributions and to preserve capital; (H) an asset s special relationship or special value, if any, to the charitable purposes of the institution. * * SOURCE: UNIFORM PRUDENT MANAGEMENT OF INSTITUTIONAL FUNDS ACT (Model Act) 22