IS IT POSSIBLE TO Say Fiduciary Duty?

Can you say fiduciary responsibility? Based on all reviews, the wicked criminality of Bernard Madoff has decimated the portfolios of hundreds of individuals and charitable organizations. The consequences for ongoing charitable programs and future presents will be experienced for quite some time to come. While there must be no limit to the outrage at Madoff, the Jewish not-for-profit community must recognize that this crisis has highlighted grave shortcomings in professional controls set up related to the investment of their funds. Judging from press reports and public marketing communications from numerous organizations, it seems obvious that the basic specifications of fiduciary oversight were not in place.

Both professional staff and lay management should undertake extensive reviews of their plans and take responsibility for their shortcomings. Complete Madoff CoverageAs the city forward appears, it is imperative that the oversight of investments be executed in a fashion that meets the highest fiduciary standards. After all, those responsible for overseeing the investments quite actually have the continuing future of many of the most crucial programs in the Jewish community in their hands. The top, often diversified allocations to Madoff reveal that the foundations dropped into the most severe pitfalls that capture individuals into unwise investments. 1 billion or more) typically had 21.7 percent of their assets in hedge money.

1.1 billion endowment with 65.3 percent. Yale’s allocation to hedge funds is 23 percent; Harvard, 18 percent. Ironically, even though many foundations focused on searching for spectacular, high-risk “alternative” investments, they did not consider allocating a portion of their investments to a much better “alternative,” such as investments that would not have entailed above-average dangers.

Examples would include: socially accountable index funds, a broadly diversified index fund of Israeli stocks or investments in indices of companies investing in clean energy. Almost all foundations ignored the chance for “successful by doing good” in their quest to discover a “hot hand” to manage their money.

Looking forward, it is essential that our organization’s draft clear investment plan statements and establish appropriate guidelines and handles. Ideally, the foundations would find yourself with an investment portfolio good “guidelines” of investment strategy and not much different than that of a prudent individual: broadly diversified with low-priced, transparent, and liquid index instruments.

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A target allocation for the stock portfolio among international and home stocks, cash and bonds, along with handles for keeping the profile within those parameters. No investments in bonds below investment grade. Restrictions on investments in asset- backed securities. Restrictions prohibiting any investments that utilize leverage or derivatives. Restrictions on investments in illiquid investments, such as capital raising and private equity, and on investments that don’t have transparent pricing and valuation.

No investments in any entities affiliated with people of the investment committee, the panel or the professional personnel. Because of this one policy, the brand-new York Jewish Community Foundation had no investments with Madoff. Ability to price all investments in the stock portfolio on a daily basis. Day Confirmations of most transactions by the next business.

Transactional activity and financial reporting performed by different individuals. Monthly performance reviews available to all investment committee people. Annual audit of most investments and procedures by an unbiased third party. As well as the above, serious consideration should get to an even higher level of transparency: complete posting on the Internet of the full portfolio and its own value and performance. Lawrence Weinman is an impartial authorized investment consultant working with individuals and organizations. He teaches a course on investment management for nonprofits at the AJU and spent some time working with Jewish nonprofits in their investment strategies.

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