The financial situation for a local non-profit social service agency was not a bright one. The executive director had learned that the annual allocation of state-legislated funds was going to be cut significantly in the next fiscal year. Therefore, when the organization had the chance to apply for a sizeable foundation grant to make up the difference, the executive director, treasurer, and the agency's finance committee leapt at the opportunity, organizing a group meeting to begin the detailed application process in earnest.
What they learned, however, was disconcerting: the application process required full disclosure of the agency's financial condition, including the status of the agency's sizeable endowment. The finance committee, which was made up of board members, realized that the extent of their management of the endowment had been a biannual letter from the bank holding the funds. Although the finance committee included several savvy businessmen, they wisely concluded that none of the group members had the expertise to maximize the endowment's potential. They agreed to call upon the McKinley Carter team for help.
The Solution
During the first meeting with the agency's executive director, treasurer, and chair of the finance committee, the McKinley Carter advisor outlined the five-step process they would follow to design an investment policy statement and allocation model. The advisor proactively took the first step in their initial meeting by interviewing the three agency members to understand the agency's financial history and goals.
Once the advisor had collected all the necessary information, the investment specialists took the next step of conducting a detailed analysis. They prepared a comprehensive report, including asset allocation analyses and the risk/reward characteristics for the endowment.
After the report was completed, the third step of the process included the advisor scheduling another meeting with the organization's executive director, treasurer, and complete finance committee to review the details of the analysis. During this lengthy meeting, all questions were answered and the advisor confirmed, to the group's satisfaction, that they understood the agency's investment goals. When the meeting concluded, the advisor was able to use this information to prepare specific recommendations for the organization's approval, the fourth step.
At the next meeting, the advisor presented an investment strategy for the endowment. Longer-term investments with prudent risk would enable the principle to grow, while other measures would provide regular interest payments that would help defray agency operating costs. For the first time in many years, the endowment would be able to serve the agency as its original donors had intended. Upon accepting the advisor's recommendation, several finance committee members commented that they never would have had the time, much less the expertise, to prepare such a plan.
The complete report and recommendation were presented for a full vote at the next general board meeting. At the meeting, McKinley Carter suggested the organization of an investment sub-committee of the finance committee, made up of the board members who expressed an interest in, and knowledge of, investment strategies. Not only was the recommendation approved by the board, but the new investment committee was created to become the liaison with the professionals at McKinley Carter.
In the final step, McKinley Carter sent the agency quarterly statements of the holdings, allocation, and performance of the portfolio. An advisor was also available to consult with the agency's investment sub-committee annually to review their goals and how the endowment could work to help achieve them.
Meanwhile, the organization was awarded the foundation grant, and several successful fundraisers helped ease the immediate financial crisis. The encouraging endowment performance of the first report gave the emotional boost the agency needed to continue its mission in the community. Best of all, with a strong portfolio under the watchful direction of McKinley Carter, the organization was able to attract – and carefully invest – several new large donations to the endowment.