Informed foundation and endowment boards realize that their foundations are more than simply pools of capital: they are actual asset management businesses.
In a world of low investment returns and burgeoning investment options, many foundations – especially those that are required to distribute capital – are faced with several options.
– Taking on more investment risk to boost returns in order to meet their disbursement obligations.
This can hinder process improvement and the vital focus on managing and meeting organizational goals. A spiral may occur as this intense focus on superior relative performance versus meeting future consumption requirement continues. It can be a major contributor to missing disbursement targets.
– Considering more conservative “high quality” investment strategies that reduce volatility while delivering higher returns.
For example, boards may use risky lower-quality bond strategies or alternative investments they don’t fully comprehend. Some smaller foundations trade off liquidity to chase higher returns because they can’t rely on recurring donations to meet disbursement requirements, which can lead to uneven results.
As such, foundations need to prudently manage assets, liabilities, revenues, and expenses and often look to an outsourced Chief Investment Officer (CIO) to assist them.