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What are the Best Strategies for Endowment Management?

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  • Written By: Geri Terzo
  • Edited By: A. Joseph
  • Last Modified Date: 01 September 2016
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Endowment management on behalf of a college or university is different from other types of investment management. The board of trustees and financial officers are responsible not only for preserving wealth for current students but also for future generations of students. Techniques to accomplish this kind of capital preservation include asset allocation, or investing capital across various asset classes in a way to protect and grow wealth, as well as maintaining some cash reserves in addition to some possible lending strategies.

An endowment is comprised of assets or capital that is donated to an educational institution, so there are college endowments and university endowments. These assets are then invested as the endowment management and investment team see fit across such asset classes as stocks, bonds, real estate, private equity and hedge funds. If managed properly, there will be funds each year to contribute to the ongoing operation of the school and consequently for the student body.

Endowment management is comprised of a board of directors who vote on and make recommendations in addition to a team of executive officers who implement changes to the fund. The board members should be unbiased and typically are not employed by the school but have some relevant background to make them qualified to affect the direction of the endowment. The financial officers also are part of endowment management, although these executives usually are employees of the university or college.

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In addition to the internal management team, an endowment typically will engage a financial consultant to assist with investment decisions. Financial markets change and go through different cycles, so the consultant is there to lead the internal team with sound investment ideas, such as flocking to a particular asset class or reducing exposure to another. These professionals also make recommendations about particular money managers who oversee assets on behalf of the endowment and weigh in on aspects such as expected fee structures and return expectations. Ultimately, the board must vote and agree to move forward with those recommendations, and the endowment's investment committee also should agree. Proper management of an endowment might include monthly or quarterly meetings to discuss any changes to the direction of the endowment fund.

Of course, the preservation of capital in an endowment is so that funds can be used to support the academic direction of a college or university. There might also be times when it is appropriate for a fundraising campaign to be launched to drive new money into the endowment fund. All of these decisions result from the leadership behind the endowment management.

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