Triennial Investment Manager Evaluation

All Souls Investment Committee presentation toBoard of Trustees

May 27, 2015

Agenda

• All Souls Investment Policy• Investment Committee Process• Summary Financial Results of Investments• Recommendation• Q/A

All Soul’s Investment Policy

Calls for• Maximizing return with moderate risk subject to any Socially Responsible

Investment (SRI) constraints.• Annual Rate of Return goal of match or exceed S&P 500, and• Exceed CPI as measured by Bureau of Labor Statistics.• Enable use of 5% of capital derived from investment returns, for operations, to

wit:• A fraction, calculated in the middle of each fiscal year as 5% of the average end-of-

quarter balance over the trailing 13 calendar quarters (the so-called “Harvard method”),

• Source: https://ascinvestment.wordpress.com/2015/01/11/investment-management-guidelines/

IC Process (2015)

• Evaluated FY 2014 results of UUCEF and TIFF against IC chosen benchmarks

• Developed questions for Investment Managers• Met personally with each advisor• Evaluated presentations among IC members

What to consider in evaluating Managers, besides absolute returns

• Fiduciary must• Diversify investments• Be Loyal (act in the organization’s sole interest)• Be Careful (Duty of Care):

reasonable care, skill and caution; portfolio approach• good faith and with care an ordinarily prudent person in a like position would exercise

under similar circumstances• Be Prudent (Duty of Prudence)

– Consider the organization’s risk/return objective• Minimize costs: reasonable costs to invest and manage, considering:

size of assetspurposes and goals of the institutionskills/sophistication of investment committee third party adviser costs should be reasonable

Source this slide and next slide: Due Diligence Considerations for Nonprofit Investment FiduciariesThursday, May 7, 2009, by Venable, LLP

Analytical Considerations—IC applied these1. General economic conditions2. The possible effects of inflation and deflation3. The expected tax consequences, if any, of investment decisions of strategies4. The role that each investment or course of action plays within the overall

investment portfolio of the fund5. The expected total return from income and the appreciation of investments6. Other resources of the institution7. The needs of the institution and the fund to make distributions and to preserve

capital8. An asset’s special relationship or special value, if any, to the charitable purposes

of the institution

The ASC endowment is invested in two funds• TIFF Multi-Asset Fund (TIFF MAF)• UU Common Endowment Fund (UUCEF)• The endowment refers to the total amount of monies invested into

these two funds• As of November 2014, roughly $6.0 million was invested in the endowment

• $3.6 million in TIFF MAF• $2.4 million in UUCEF

Note: UUCEF also manages some funds bequeathed to All Souls, and All Souls cannot move those bequests to another manager.

ASC endowment performance

• In 2014, the market was not as strong as it was in 2012-2013.• From 2012-2013, net of fees:

• UUCEF averaged an annual return of 11.6 percent• TIFF averaged an annual return of 14 percent

• As of December, for 2014, net of fees:• UUCEF had a 3.8 percent annual return• TIFF had a 1.0 percent annual return

• Fees reduce the earnings:• Fees reduce earnings by 1.97 percent in TIFF MAF.• Fees reduce earnings by 1.05 percent in UUCEF.

ASC endowment performance cont’d

• Net of fees, the ASC endowment had a return in 2014 of 3.8 percent as of November 2014 (latest data from the analysis).

• This is down from returns of around 12 percent in 2012 and 2013.• During the triennial period, the value of the fund had grown from

$5.57 million in January 2013 to a peak of $6.18 million in April 2014.• The value of the fund fell to $5.99 million in November 2014 (latest

data from the analysis).• This is largely due to nearly $250,000 in withdrawals from the endowment.

A note on the limitations of the analysis• The returns calculated in this analysis are average compounded year-

over-year returns. This approach smoothes out some of the volatility over the period.

• Another approach, which would incorporate back in some of the volatility, would be to take the average mom or qoq returns for the period and then annualize them:

• Annualized mom returns were 9 percent; qoq were 8 percent.

• Also, it should be noted that 2013 was an unusually good year for financial markets, so 2012-2014 might skew upward the results.

• Simply taking the returns from 2014 would show average returns of 8.8 percent.

What Investment Management Costs Us• From 2012-2014, fees would have amounted to about $500,000,

assuming the fees were reinvested in the endowment.• UUCEF Fees:

• 1.05 percent; and

• TIFF Fee Structure• 1.97 percent• 0.5 percent of withdrawals and deposits.

• TIFF imposes this fee to disincent use of invested funds for operating cash.

Findings• ASC investments, given that they are diversely invested, did not take full advantage

off U.S. Domestic Stock market performance in 2014.• UUCEF and TIFF have similar strategies of long-term growth with moderate risk to

investors, and a goal of returning on average over time 8-10% annually:• The over time is important: it means that in one year ROI may be 4%, and the next 12% for a

two year average of 8%. Imagine this in 5-year increments to get the picture.

• UUCEF and TIFF are both qualified professional investment managers for non-profit institutions, e.g. ensuring Prudence and Diversification in a way IC (all volunteer) may be unable to.

• UUCEF has particular abilities to match UU Values:• E.g. sophisticated social screens used

• UUCEF & TIFF were diverse and prudent when viewed over the long term. • All Souls may need to rethink its investment policy to:

• Identify benchmark other than S&P 500 and CPI• To account for the occasional need for a contingency fund which would not be invested for

long-term results.

Recommendations

Having completed the Triennial Review, the Investment Committee recommends:1. Continue with UUCEF and TIFF as investment managers for one year, but

monitor 2015 performance closely to determine whether changes are advisable in advance of next Triennial Review in 2018, with an appropriate appointment letter to be executed by an authorized representative of All Souls. (Further recommendations by IC due in Summer, 2016.)

2. Authorize IC to invest up to $500,000 in a no-cost balanced index fund such as Vanguard Balanced Index Fund; this authorizes but dos not require such a change. IC to report back to BoT on IC action in 2016.

3. In 2015, IC to undertake research on further investment management options in the event that there is a recommendation to change managers.