INVESTMENT FREQUENTLY ASKED QUESTIONS
The Community Foundation of Washington County through the Greater Cedar Rapids Community Foundation is committed to providing responsible stewardship of the funds entrusted to us. Our investment strategy is driven by the goals of preserving capital and honoring future generations. Contributions made to the Community Foundation are pooled for investment purposes. The pools have component funds and a system of unitization, much like a mutual fund, that allocates the total return to each component fund. These component funds represent a collection of the interests of individual donors and agencies who have united to increase the effectiveness and assure the future of charitable giving. Advantages of pooling funds include greater diversification of investments and access to investment vehicles that would not be possible for individual funds. This, in turn, provides for greater opportunities without increasing risk.
What is the Community Foundation’s investment objective?
The Community Foundation’s long-term investment objective is to achieve a total return in excess of the sum of the distribution rate, the long-term inflation rate, and the aggregate costs of portfolio management. The goal is to earn a return that allows donors to make desired grants while maintaining the endowment’s future giving power. The current target for total return is 7.5% per year.
How is investment return measured?
Investment return is measured by total return, which includes interest and dividend income, as well as realized and unrealized gains and losses.
What is the role of the investment committee?
The Investment Committee is charged by the Community Foundation’s Board of Directors to oversee the investment management of contributions made to the Community Foundation. The Committee is responsible for approving the investment strategy, selecting investment consultants, and monitoring investment performance. The Committee is responsible for maintaining knowledge about the Community Foundation and its managers to be assured of their compliance with the Investment Policy Statement. Committee members are volunteers with significant business and investment management experience. The Investment Committee meets quarterly.
What is the role of Fund Evaluation Group?
Fund Evaluation Group (FEG) is an investment consulting firm which serves as a consultant to the Investment Committee. FEG assists the committee in all aspects of managing and overseeing the investment portfolio. They are an independent fiduciary, free of conflicts of interest.
How are investment managers selected?
When the Investment Committee seeks a new investment manager for a particular asset class, Fund Evaluation Group (FEG) identifies managers with a three-to five-year outstanding track record for this asset class. Members of the Investment Committee and Community Foundation staff meet with FEG to review each fund manager’s organizational profile, investment philosophy, investment process, professional staff and investment performance. Based on this review, the Investment Committee selects the optimum manager or managers for the asset class allocation.
How is the investment manager’s performance monitored?
Fund Evaluation Group (FEG) provides detailed quarterly reports on the performance of the portfolios and of each investment manager in the portfolios. At each quarterly meeting of the Investment Committee, FEG provides an in-depth analysis of each manager’s investment performance. This analysis includes comparisons against the appropriate benchmark and against the manager’s peer universe. In addition, the Investment Committee monitors any organizational changes within an investment firm that may influence performance in the future and confirms that each manager continues to adhere to investment guidelines. In addition to these quarterly reviews, Investment Committee members, Community Foundation staff and FEG may also confer informally about investment managers.
Does the investment committee ever change investment managers?
Yes. New managers are selected when the Investment Committee seeks greater depth in a particular asset class. Reasons for dismissal of a manager include poor performance over a period of time, moving away from the investment discipline for which a given manager was hired, unfavorable changes in the organizational structure of the investment firm and loss of investment talent. However, given the rigorous process by which managers are selected and how consistently their investment performance is monitored and compared, the Investment Committee’s practice is to retain a manager a minimum of three years. In other words, the fact that a manager does not have a good quarter, or even a good year, compared to the appropriate benchmark for that asset class does not in itself require dismissal.
Why is the Community Foundation portfolio invested in different asset classes?
The Investment Committee has determined that greater return can be gained, with less risk, if the portfolio is strategically diversified among large, mid and small capitalization companies, public and private companies, international as well as domestic stocks, global as well as domestic bonds, various types of real assets and absolute return vehicles. The strategic mix of these asset classes represents the Community Foundation’s asset allocation strategy.
Why does the Community Foundation have a distribution rate, rather than allowing each fund to spend what is earned in a given year?
The distribution rate determines the dollar amount available for distribution annually. This methodology smooths out the peaks and valleys that would be experienced if income and dividends earned (or not earned) by a fund were distributed each year. This is a strategy that has been adopted by most major endowments. The distribution rate is currently 4.5 percent.
What fees do donors pay to the Community Foundation?
Funds at the Community Foundation are assessed two sets of fees, those for investment management and those for Community Foundation administrative costs. Investment management fees are those charged by our investment managers and are dependent on the investment portfolio selected. These professional consulting and brokerage fees are allocated pro-rata over all funds participating in the portfolios of the Community Foundation. Administrative fees are based on asset size and fund type.