Endowment & Foundations Paper Published

Low Rate Hand

Fiduciary Trust Company Outlines Best Practices for Endowments and Foundations Investing in a Low Interest Rate Environment in Latest White Paper

Fewer than half of respondents have adopted a “total return” approach to portfolio management and more than a third are either considering or have already rotated into riskier assets over the past two years.

BOSTON– June 28, 2017 – Fiduciary Trust Company, an advisor and investment management firm for high-net-worth individuals and charitable organizations, published a white paper today demonstrating the extent to which endowments and foundations (E&Fs) have been impacted by the low interest rate environment. The paper, grounded in research conducted by Fiduciary Trust and Associated Grant Makers, also outlines a number of best practices for E&F leaders and boards in navigating through this environment.

“The survey results confirmed that at a time in the cycle when mistakes can be most costly, many institutions may be reacting myopically in the short-term without fully appreciating the corresponding long-term consequences or key sustainability considerations,” said S. Joel Mittelman CFA, who is co-author of the paper and Vice President, Endowments & Foundations at Fiduciary Trust.

Among the findings:

  • Fundraising: Of the public foundations and other nonprofits polled, 83% indicated that they have increased fundraising in the past two years due to the low-return environment.
  • Investing – Asset Allocation: The majority of respondents (82%) recognize long-term strategic asset allocation as the most important driver of returns, and half indicated that their organizations have changed the allocation mix of their portfolios over the past two years. At the same time, a large number of respondents volunteered that their biggest challenge as a board/committee is not overreacting to short-term results, as one said, “sacrificing the permanent on the altar of the immediate.”
  • Investing Objectives: Over 50% of respondents cited “maximizing long-term total returns” as their organizations’ most important objective; conversely, only 12% identified “minimizing downside risk” as most important.
  • Investing – Total Return: Forty-three percent of respondents said their organizations have adopted a “total return” approach to portfolio management.
  • Grant-making: Of the public, corporate, family and private foundations polled, 42% have either reduced the level of grant-making over the last two years or are considering such an action.
  • Spending: Forty-six percent of the public foundations and other nonprofits surveyed have reviewed and potentially reduced spending to ensure it is at the lower end of the allowable range.
  • Governance – Training: Surprisingly, nearly one out of every five polled (19%) have never conducted training for the full board in regard to members’ obligations and fiduciary duties, while 37% only conduct training for new board members or trustees.
  • Governance – Requirements: Finally, of the public foundations and other nonprofits polled, 78% indicated that they were either not familiar or just somewhat familiar with the Uniform Prudent Management of Institutional Funds Act (UPMIFA). Only 28% of the corporate, family and other private foundations were either not familiar or just somewhat familiar with the IRS rules and requirements related to the 5% distribution requirement.

“Of all the relief levers available to nonprofit organizations, maintaining a sophisticated governance function may be the most consequential given its effect on prudent investing, as well as spending or grant-making decisions,” said Stacy K. Mullaney, Chief Fiduciary Officer at Fiduciary Trust Company and co-author of the paper. “A non-profit board’s thorough understanding of the laws and regulations governing investing and spending may also provide the flexibility to adapt during periods of stress.”

The survey included 236 participants from corporate, family, public and private independent foundations, as well as other nonprofit organizations and endowments, including hospitals, schools, religious institutions and charitable organizations. The research concluded in January 2017.

S. Joel Mittelman, CFA, and Stacy K. Mullaney, Esq. co-authored the accompanying white paper,Managing in a Low Interest Rate Environment.” The full white paper can be found here.

About Fiduciary Trust Company:

Fiduciary Trust is a privately-owned wealth management firm focused on families, individuals and non-profits seeking objective expertise to grow and protect their investments. The firm also provides a range of services to single family offices and professional advisors. Fiduciary Trust’s capabilities include customized financial planning, investment management, trust and estate administration, and family office and custody services.

Fiduciary Trust takes a personal approach based on expertise, strong performance and a genuine commitment to act in its clients’ best interests. The firm’s unique, private ownership and unconflicted investment approach align its interests with clients’ and provide the stability and permanence its clients seek.

For additional information about Fiduciary Trust’s services, please visit www.fiduciary-trust.com/for-endowments.

Media Contact:

BackBay Communications
Emily Stoermer, 617-391-0801

Discover more about what differentiates Fiduciary Trust

Talk to a Fiduciary Trust Advisor