Authored by: Ann Bennett Spence

The Foundation of Good Governance for Endowments and Investment Committees

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Suboptimal governance can extend disappointing performance or perpetuate suboptimal past decisions. By contrast, good governance leads of its own design to necessary mid-course corrections. To create the conditions for good governance, endowments should assess whether they have in place the appropriate model for portfolio oversight and management, are upholding their fiduciary responsibilities, and are learning about peer best practices in structure, process, policies, and role of the portfolio.

The Missing Metric for Endowment Growth: Net Flow Rate

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By comparing the net flow rate with the real investment return, an institution can determine whether its LTIP is successfully sustaining its role in the institution’s business model The net flow rate is the regular LTIP payout rate plus reinvested operating surpluses, capital additions, and capital withdrawals. Over the long term, the real investment return…

“Mark to Market” Accounting: An Endowment’s Guide to the New Valuation (FAS 157)

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This report discusses the upcoming implementation of the new “mark to market” (“fair value”) accounting standard. It provides a brief review of the broader accounting and auditing context and examines the probable effects of FAS 157 on long-only equity and fixed income managers, hedge funds, and non-marketable investment funds (private equity, venture capital, real estate)….

Endowments and Alternative Investments – Preparing for the Next Audit

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In July 2006 the American Institute of Certified Public Accountants issued a “Practice Aid” to guide the auditors of institutions with investments in alternative assets. This report reviews the key elements of auditing alternative investments and provides advice on steps endowments should consider in their 2007 audit, which will most likely be more difficult than…

Auditing Alternative Investments

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In July 2006, the American Institute of Certified Public Accountants issued a “Practice Aid” to guide the auditors of institutions with investments in alternative assets. This report is a review of the implications of the Practice Aid based on discussions with major auditing firms, careful examination of the Practice Aid, and Cambridge Associates` familiarity of…

Investment Committee Governance

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A concise review of issues pertinent to investment committee members, particularly (1) the law applicable to fiduciary responsibility; (2) its enforcement; (3) its evolving interpretation; and (4) second-order effects centering on changing views of accountability and risk, and coming from auditors and debt rating agencies.

Conflicts of Interest

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This report examines state and federal law governing the fiduciary responsibilities of nonprofit entities, particularly investment committees, and IRS enforcement of transactions involving “excess benefit” and “disqualified persons.” Exhibits include sample conflict of interest and disclosure policies.

Reversal of Fortune: The Effect of the Market Decline on the Budgets of Endowed Institutions

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This paper describes the circumstances surrounding the accelerated rise of expenses at many institutions with large endowments during the unprecedented market rise of the 1990s, and the budgetary implications of the three-year decline in the equity markets, not seen since 1941. A section entitled “What to Do?” offers suggestions for dealing with the budgetary consequences…