College Columns May 2019 - Page 10

Over the past year, in response to the work of the Ad Hoc Endowment Task Force, the joint College/Foundation Finance Committee has undertaken a project to develop and implement

investment and reserve policies. The group first explored various options for the retention of an advisor to assist in decisions on investment of College and Foundation funds. In March 2019, the College and Foundation Boards approved the engagement of Vanguard Institutional Advisory Services, which offers discretionary investment management services specifically directed to the needs of nonprofits.

Developing investment objectives necessarily required assessment of recommended reserves for the College and the Foundation. Based on the Finance Committee’s consideration of best practices and the organizational circumstances and risk factors of the College and the Foundation, their respective Boards agreed to establish the following funds and reserves:

i. Undesignated operating funds intended to meet day-to-day working capital needs.

ii. Board designated operating reserves intended for use in unusual circumstances or for unforeseen financial needs.

iii. Board designated special purpose operating reserves intended to fund budgeted grants to be made by the Foundation.

iv. Board designated quasi-endowment funds intended to produce income, rather than to fund operations or grants.

The anticipated level of reserves results in an initial operating reserve ratio as a percentage of annual budgeted expenses of approximately

70% for the College and 99% for the

Foundation, both well within recommended benchmarks.

The Finance Committee and Executive Committees of the College and the Foundation are currently analyzing recommended asset allocations and investments and completing the process of opening accounts and transferring funds from the certificates of deposit in which they have historically been invested. Consistent with the goal of maintaining organizational and fiscal stability, the board designated operating reserves will be invested in short-term or money market funds that emphasize limited volatility and current income. The board designated quasi-endowment funds will be invested in long-term investments with the objective of growing Foundation resources available for pro bono grants through increased investment returns and increased College contributions to compliment ongoing efforts to increase donations to the Foundation.

The investments will be overseen by an Investment Subcommittee of the Finance Committee, based on direction from the College and Foundation Boards and Executive Committees, which will receive regular investment reporting. The Finance Committee is working with Vanguard to document the investment policy and is drafting a reserve policy, each of which also will be subject to annual review by the College and Foundation Boards.


College and Foundation

Investment and Reserve Policies

Melissa Kibler, Mackinac Partners

Treasurer, American College of Bankruptcy