SPARK SESSION: ENDOWMENT INVESTMENT MANAGEMENT FOR INSTITUTIONAL USE ONLY NOT FOR PUBLIC DISTRIBUTION

Transcription

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2 SPARK SESSION: ENDOWMENT INVESTMENT MANAGEMENT

3 TODAY S TOPICS Brief Overview of BSA Asset Management Environment for Endowment Investment Management Guidelines for Investment Policy Guidelines for Investment Procedures Guidelines for Evaluation of Managers Resources

4 BSA ASSET MANAGEMENT

5 Mission - to provide a high quality, low cost investment option to any local council that wishes to participate the BSA Commingled Endowment Fund, LP BSA is the sole member (owner) of the LLC Board of Managers, consisting of BSA volunteers, appointed by BSA s Executive Board Board of Managers oversees all investment decisions This is governance structure for all BSA National assets: Pension Plan, Retirement Benefit Trust, General Liability Insurance Program, Employee Welfare Benefit Trust, and Defined Contribution Plans 5

6 BSAAM GOVERNANCE BSA Asset Management, LLC Governed by the Board of Managers* BSA Master Pension Trust BSA Retirement Benefit Trust BSA Commingled Endowment Fund, LP BSAAM is General Partner BSA General Liability Insurance Program BSA Employee Welfare Benefit Trust BSA Defined Contribution

7 BSAAM BOARD OF MANAGERS NAME TITLE COMPANY Robert A. Bedingfield Partner Ernst & Young, LLP Richard L. Burdick Chairman Thermon Industries Inc. Harriss A. Butler, III President Avery Advisors, Inc. Keith A. Clark Chairman Shumaker Williams, P.C. D. Kent Clayburn Senior Vice President UBS Financial Services Philip M. Condit Former Chairman & CEO The Boeing Company John M. Coughlin Founder Coughlin Group Terrence P. Dunn President & CEO J.E. Dunn Construction Group, Inc. Aubrey B. Harwell, Jr. Managing Partner Neal & Harwell Attorneys Peter W. Hummel President Eagle Exploration, Inc. Robert J. LaFortune Investor Tulsa, OK Joseph P. Landy Co-President Warburg Pincus Francis R. McAllister Former Chairman & CEO Stillwater Mining Company Glen McLaughlin President & CEO Venture Leasing Associates Brian Merkley Global Director Huntsman Corporation Ronald K. Migita Chairman of the Board Central Pacific Bank Francis H. Olmstead, Jr. Former Chairman & CEO Anchor Advanced Products Marshall M. Sloane Chairman of the Board & CEO Century Bank & Trust Company C. Travis Traylor, Jr. Investor Houston, TX Gary E. Wendlandt Former Vice Chairman New York Life

8 INVESTMENT ENVIRONMENT

9 OVERVIEW OF ENVIRONMENT FIDUCIARY CONSIDERATIONS SPENDING POLICY UPMIFA

10 OVERVIEW OF ENVIRONMENT FIDUCIARY CONSIDERATIONS Anyone who exercises discretion in administering a fund or controlling the fund assets is a fiduciary, to the extent of their discretion or control Board of Directors; Investment Committee Trustees; Investment Advisor; Finance Staff Trustee/fiduciary is personally liable Trustees of charitable organizations held to fiduciary standard Knowledge of state and federal legal and regulatory environment Follow documented fiduciary process Fiduciary liability not determined by investment performance, but rather by whether prudent investment practices were followed

11 OVERVIEW OF ENVIRONMENT SPENDING POLICY Balance between supporting current needs and maintaining future purchasing power. Must act in good faith and shall consider: Duration and preservation of fund; Purposes of institution and fund; General economic conditions; Possible effect of inflation or deflation; Expected total return from income and appreciation; Other resources of the institution; Investment policy of institution Typical BSA spending policy is between 4% and 5% of average MV for prior 12 to 20 quarters (3 to 5 years) BSA National s policy (total return) allows up to 5% of avg. MV for prior 12 quarters For 2016, BSA National has capped spending at 4.5% Note: Typical BSA council trust is income only (with the trustee determining what is income )

12 OVERVIEW OF ENVIRONMENT SPENDING POLICY FY 2015 figures from NACUBO-Commonfund Study of Endowments (NCSE) 4.2% average effective spending rate for 812 institutions Over $100 million was a range from 4.1% to 4.3% Over $25 up to $100 million was a range from 4.0% to 4.4% Under $25 million average was 4.5% Private institutions average of 4.3% Public institutions average of 4.0% Information from reports and press release dated January 27, 2016 at National Association of College and University Business Officers and Commonfund Institute

13 OVERVIEW OF ENVIRONMENT UPMIFA UPMIFA - Uniform Prudent Management of Institutional Funds Act 2009 State law governing endowment funds of charitable institutions Provides guidelines for management, investment and expenditures of endowments As of April 2012, adopted in all states and US territories except Pennsylvania and Puerto Rico Uses Prudent Investor standard for decision-making Act in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A trustee shall invest and manage assets as a prudent investor would, by considering the purposes, terms, distributions, requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill and caution. Documented Fiduciary Process (outlined in Appendix)

14 OVERVIEW OF ENVIRONMENT UPMIFA Duty to diversify investments Basic tenet of risk management used to mitigate volatility / risk of the markets Allows delegation of management and investment responsibility May have a duty to delegate, recognizing trustees limitations and complexity of investment world; must rely on experts Investment costs must be appropriate and reasonable Duty to minimize incurred fees Most relevant predictors of future performance: Fees, Diversification, Asset Class

15 INVESTMENT POLICY

16 INVESTMENT POLICY INVESTMENT POLICY STATEMENT Provides long-term strategic guidance for the fund Developed with spending policy in mind Sets clear expectations of investment goals Defines limitations for assets and risk levels Assigns responsibilities for all parties Forms the basis for the strategy to be implemented Establishes basis for evaluating investment results Provides for ongoing control of the investment process Ensures compliance with laws and regulation

17 INVESTMENT POLICY ASSET ALLOCATION Asset allocation is one of the most important factors affecting investment returns. The Ibbotson study showed it is the primary factor: Asset allocation accounts for 91% of return Security selection accounts for 5% Market timing accounts for 2% Other factors account for 2% Source: Roger G. Ibbotson. Does Asset Allocation Policy Explain 10, 90 or 100 Percent of Performance? Financial Analyst Journal, January/February 2000; Brinson, Singer and Beebower. Determination of Performance II: An Update, Financial Analyst Journal, May/June Based on US pension-fund data from 1977 to 1987.

18 INVESTMENT POLICY ASSET ALLOCATION PROCESS The Process # Years Cycle Investment Policy Review Council Investment Committee Asset Allocation Study Manager Search Manager Structure Study

19 INVESTMENT PROCEDURES

20 INVESTMENT PROCEDURES DETAILED FRAMEWORK Provides operational guidance in the day-to-day operations of the fund Assigns responsibilities and sets clear expectations for parties involved: Board, Committee, Staff, Investment Advisor, etc. Defines limitations for asset classes and risk levels Outlines rebalancing process Defines benchmarks Outlines process for monitoring of managers/investments

21 INVESTMENT PROCEDURES INVESTMENT PROCESS The Process One Year Cycle Annual Performance Presentation Council Investment Committee Ongoing Performance Measurement Ongoing Manager Due Diligence Ongoing Guideline Compliance

22 EVALUATION OF MANAGERS

23 EVALUATION OF MANAGERS MANAGEMENT OPTIONS What is prudent under UPMIFA? Duty to delegate; Rely on experts Investment Advisor / Manager - provide services including advice on investment objectives, asset allocation, manager search, performance monitoring, investment policy review, spending distributions Bank trust department BSA Commingled Endowment Fund, LP managed by BSAAM Do it Yourself does council have the expertise? What role does Committee want to play oversight, time, expertise, continuity of expertise, assumption of liability?

24 EVALUATION OF MANAGERS CRITERIA People Qualifications: Registered Investment Advisor (RIA), Bank/Trust exemption, PPA 1995 exemption, Chartered Financial Analyst (CFA) Experience and Client base non-profits, endowments and foundations Process Investment philosophy and approach strategic or tactical Research capabilities and resources; Investment disciplines Risk control Performance Consistent GIPS-compliant composites, benchmarks

25 EVALUATION OF MANAGERS CRITERIA Fees and Expenses Fully disclosed: Advisory fees, management fees, 12(b)(1) and other fund level fees/expenses, brokerage fees, commissions, trustee fees (if applicable) Reasonable (vs market) for services provided Under UPMIFA, council has a duty to minimize incurred fees Reporting, Meetings, Other Considerations

26 EVALUATION OF MANAGERS HOW BIG AN IMPACT DO FEES HAVE? 1,500 Growth of $ % Fee 1.5% Fee 1,000 $ /30/1980 3/31/1983 9/30/1985 3/31/1988 9/30/1990 3/31/1993 9/30/1995 3/31/1998 9/30/2000 3/31/2003 9/30/2005 3/31/2008 1,500 1,

27 RESOURCES

28 RESOURCES Appendix Outline of Documented Fiduciary Process BSA Asset Management RFP template questions for investment advisor/manager search Investment Policy Sample Investment Procedures Sample Information on the BSA Commingled Endowment Fund, LP BSA Legal Department Russ McNamer Questions about trust documents/amendments or other trust issues NACUBO Annual Endowment Study at

29 TAKE AWAYS

30 TAKE AWAYS Act in best interests of organization/beneficiary Understand regulatory environment Follow Documented Fiduciary Process Investment Policy Statement Asset allocation Act as prudent investor hire experts as needed Diversify assets Total return approach (if appropriate) Control and minimize expenses Monitor managers/portfolio

31 BSA COMMINGLED ENDOWMENT FUND, LP

32 PLEASE NOTE: Portions of the presentation have been removed from this online copy as those portions contain information specific to the BSA Commingled Endowment Fund, LP. For more information, please contact BSA Asset Management, LLC. Contact information is in the Appendix of this presentation. This presentation is for informational purposes only and does not constitute an offer or solicitation to sell units in the BSA Commingled Endowment Fund, LP. Any such offer or solicitation will be made only by means of the LP's confidential Offering Documents. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. Accordingly this presentation does not constitute investment advice or counsel or solicitation for investment in any security. This presentation does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or any invitation to offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in any connection with, any contract or commitment whatsoever. BSA Asset Management, LLC expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in this presentation, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom.

33 THANK YOU! Link to Spark Session materials:

34 This Spark Session gave me information, resources, or ideas that I can use to help my council, area, or region achieve our game plan. On your way out of the session, Please place your session ticket in one of the baskets to reflect your response. (We will count them and discard so no names will be collected and any ticket will work)

35 APPENDIX

36 OVERVIEW OF ENVIRONMENT UPMIFA Documented fiduciary process Establish written investment policy statement Determine asset allocation policy Develop spending policy Select appropriate managers and investments Determine and document strategic and tactical asset allocation decisions Monitor managers and investments, portfolio rebalancing Document procedures and maintain detailed records

37 BSA Asset Management, LLC CONTACT INFORMATION Address: 1325 Walnut Hill Lane, S403 Irving, Texas Phone: Fax: Attn: Ken King