July 24, 2008 | Read Time: 3 minutes
Some small and midsize charities, disappointed by the investing results produced by managers hired by their boards, have decided to hire experts to take over all the duties of managing an endowment.
Commonfund, which helps colleges and other charities manage their endowments, has in recent years started to serve as the de facto chief investment officer for nonprofit organizations, working closely with each charity’s board on asset allocation and governance issues, in addition to selecting investments. Commonfund now has 70 clients for whom it provides complete management, twice as many as it had three years ago, according to John S. Griswold, executive director of the Commonfund Institute, the educational arm of Commonfund. Those clients have assets ranging from $25-million to $500-million.
“It’s very difficult to marshal the resources to manage these complex portfolios and get access to the right managers unless you have a terrific group of professionals on your investment committee,” Mr. Griswold says. “People are concerned that they can’t keep up.”
Chicago Connection
The Jewish Federation of South Palm Beach County decided last year to hand over management of its $68.5-million endowment to a sister Jewish fund. A committee of investment professionals on the Florida federation’s board had been responsible for hiring investment managers, but the endowment had earned an average annual return of less than 6 percent from 2005 to 2007, including a 2.8-percent return for the fiscal year ending last August.
“We were clearly unsatisfied with the investment performance,” says Irv Geffen, the federation’s executive vice president for financial resource development.
The federation ultimately decided to hire the Jewish Federation/Jewish United Fund of Metropolitan Chicago to manage the endowment.
The Chicago federation had most of its assets in American stocks a decade ago and suffered weak returns during the bear market earlier this decade. In 2002, it hired its first chief investment officer and diversified into several alternative investments. Over the five years ending in April 2008, the endowment earned an average annual return of 14.2 percent, handily beating the 10.6-percent return for the Standard and Poor’s 500 over the same period, according to David R. Brief, the Chicago federation’s chief investment officer.
For more than 25 years, the Chicago federation has allowed local Jewish organizations, including synagogues and day schools, to invest their funds in its endowment pool, earning exactly the same return and paying the same fees as the Chicago federation. In 2004, it began allowing Jewish federations in other cities to join the pool. Five other Jewish federations, including South Palm Beach County, now invest in the Chicago pool. The Chicago federation owns 63 percent of the assets — its share is worth about $665-million — and the other agencies and foundations own the remaining 37 percent.
“We’re extending our mission,” Mr. Brief says. “By putting more money into the pockets of other Jewish entities, we help make their corners of the Jewish community a better place.”
For the five months ending in May, the Chicago pool was down about 1 percent. “It’s early in the relationship, but we’re confident that this is going to be a positive thing for us,” Mr. Geffen says.
