How can we balance risk and expected Returns?

Investing for an organization is similar to investing for individuals.  The primary differences involve setting objectives in a group setting and in understanding the income or donation sources an organization may have to build its financial support.

Groups or boards of directors or trustees need a communication structure that is built on a common vocabulary surrounding their investment process.  An advantage that organizations have over individuals is the reinforced structural discipline that should be present in the institutional setting.  Most organizations have a finance and/or investment committee that reviews not only the objectives, but how the asset allocation decision is made as well as the process by which investments in each asset class are selected.

Many organizations have a consultant, a professional person or organization who reviews the process of the investment committee and may make suggestions or perform due diligence on the selections that are made.  Others have a single manager who performs the roles of consultant and mangers together.  Hartline often fits this combined role for small to medium sized organizations up to about $100 million in assets.  Past that level, we often perform the role of a manager of a portion of the assets, usually a balanced fund or a multi-cap growth equity manager.  Additionally, we offer several non-traditional asset alternatives that work into the combined role or single role models.

I have often found the posture of consultants to the investment community to be contrary to the gut reaction that investors have about funding endowments.  If a fund is not large enough to pay out the distribution stream needed to fulfill its role in the organization, the fund is referred to as being “under-funded”.  If the payouts can meet the required distribution requirements, as in a pension fund or an endowment, the term used is “fully-funded” for such an account.  A fully-funded plan will be generally invested more “conservatively”, meaning that it will have less of the higher volatility assets (stocks, international stocks, etc.) and fewer bonds and other less volatile (principle volatility) assets.  The theory goes that, once you have met your requirements, you don’t want to take chances which could result in becoming under-funded.  If the fund is under-funded, then a more aggressive stance is often suggested.  This raises the odds that the fund will become fully-funded in the future (whereas it would not have much chance if invested conservatively).  To Hartline, differentiating on the basis of funding is not the critical variable, and decisions like this can create bigger problems for the under-funded plan.

Hartline spends a good deal of time with clients in first understanding, and then building an investment plan that targets appropriate goals, assesses the risks (liquidity, principal, buying power) and outlines the process for selecting, disposing, distributing income and allocating new capital.  We are glad to discuss how Hartline can help you and your committee in this process or a specific role that Hartline can contribute to your existing process.