How Mid-Sized Foundations Leverage Professional Expertise

Every charitable foundation begins with a vision of the future and a mission of making a positive difference in the world. The start-up phase of creating a foundation is often marked by optimism, passion and a genuine excitement about the power to transform lives. However, establishing a mission statement and basic operations are only the first steps in a long journey.

Managing the assets and day-to-day operations of any foundation can be challenging. For small to mid-sized foundations, these challenges may become even more pronounced over time. As new generations of family members and trustees take over the operation of the foundation, they often face fresh obstacles, including difficult financial markets, limited time to manage the foundation, and the need to revise or improve existing investment and operational guidelines.

While these challenges can seem daunting, there are a number of solutions available today to help mid-sized foundations create a more disciplined approach to investing, while streamlining their daily operations. These solutions are designed to help foundations focus on what is most important to them—producing measurable results toward accomplishing their mission.

If you’re managing a private or family foundation, you may want to implement the following strategies to achieve success.

Eric slammed down the telephone in frustration. Having just called his broker, he still did not know if his family’s foundation assets were properly invested. The dramatic drop in value of the foundation’s assets had him re-evaluating past decisions. His broker seemed to have little advice. To make matters worse, he received a message from his sister, Helen, indicating the year was almost over and they needed to research a pile of grant requests. Since she lived out of state and kept the records, he’d forgotten that they still had grants to approve in order to meet their 5% distribution requirements. Sitting back in his chair, he wondered if this was what his parents had in mind when they started the family foundation years ago.

Strategy #1: Create Your Own Team of Experts

Family members and trustees who feel overwhelmed by the challenges of managing a foundation often do not realize that they have untapped resources at their disposal. Consider the case of Eric and Helen, two siblings who recently took over the management of their family’s foundation.

Eric and Helen clearly need help with both the investment and operational aspects of their foundation. Today, many foundations are partnering with experienced experts to help ensure that investment management and administrative functions do not get in the way of focusing on the foundation’s primary mission.

If you’re looking to build your foundation’s advisory team, ask for referrals from those you already know and trust. As a starting point, talk with other families, your family attorney, accountant, or other trusted advisors who manage foundations for introductions to the experts and resources they use.

Strategy #2: Work With Experts

Who Leverage Technology America is the most philanthropic nation in the world. Private foundations give over $40 billion annually. However, nearly 90% of these foundations have less than $5 million in assets. For many foundations, it can be a challenge to find solutions that fit the scale of their organization. They may not have the time, resources or interest in hiring a full-time staff, yet they still need investment and administrative solutions designed with their needs in mind.

Fortunately, there are two major trends in today’s market for philanthropic services that stand to greatly benefit foundations. The first is the emergence of independent, boutique-style investment managers specializing in meeting the needs of private foundations. The second is the availability of new and improved online resources for outsourcing and streamlining virtually all administrative functions.

While independent investment managers have existed for decades, recent improvements in technology and investment platforms allow even relatively small managers to offer robust, institutional-quality investment management services tailored specifically to mid-sized foundations. The advantages of choosing a boutique investment management firm include highly personalized service, direct access to your portfolio manager and clear accountability for performance. Working with a registered investment advisor includes the additional benefits of receiving objective advice without conflicts of interest, as well as the ability to work with an experienced professional who serves your foundation as a true fiduciary.

At the same time, web-based administrative services are rapidly evolving to meet the needs of most foundations. These online services can help streamline and outsource much of the often tedious administrative work, allowing trustees to spend more time on their philanthropic mission.

Strategy #3: Avoid Confusion With Clear Policies

Just as most foundations have a concise mission statement, it’s equally important for them to have a written investment policy statement for managing their assets. An investment policy statement serves as a roadmap for making investment decisions, ensuring that the investment portfolio is properly aligned with the foundation’s goals, investment time horizon, and tolerance for risk.

The world’s most successful institutions—including pension funds, endowments and foundations—all use written investment policy statements to guide their investment decisions. By creating or updating your statement, you’ll be employing best practices for your foundation and increasing your chances of achieving your long-term financial goals.

Benefits of a written investment policy statement include:

• Creating an asset allocation strategy appropriate for your foundation.
• Establishing a structured investment process.
• Understanding which investments (such as stocks, bonds, ETFs, hedge funds, and real estate) are appropriate for your goals.
• Managing risk during turbulent markets.

If your foundation currently doesn’t have a written investment policy statement, an investment manager who has experience working with foundations can help you create one. If you have an existing investment policy statement that you’re interested in updating to reflect the current needs of your foundation, a seasoned investment manager can also help you with a comprehensive review.

Private foundations give over $40 billion annually.

Source: The Foundation Center, Foundation Yearbook, 2008.

Strategy #4: Streamline Operations Through a Virtual Office

Most foundations face a broad range of operational challenges. These may include: working with inadequate tools for accounting, reporting, and analysis; struggling to maintain compliance with ever-changing regulations governing nonprofit organizations; and ensuring continuity and composition of a foundation’s board of trustees.

Page Snow, Chief Philanthropic Officer at Foundation Source, offers the following insights into the operational challenges of mid-sized foundations:

“Families typically start a private foundation to support causes they believe in and build a brighter future for the next generation, while also seeking to ensure a more tax-efficient transfer of wealth to the charities of their choice. However, many families get caught up in the administrative part of managing staff and monitoring compliance requirements, taking away valuable time from their philanthropic goals. No one starts a foundation to manage staff or to do back-office and administrative work. That’s why it’s important to look for partners who can help you streamline your daily operations and stay focused on things that matter the most to you.”

An example of a new generation of companies providing affordable, administrative support to midsized foundations, Foundation Source offers scalable and comprehensive outsourcing solutions for a variety of administrative functions. Most of these solutions are web-based, offering simplicity, affordability and scalability. For mid-sized foundations, choosing an online administrator can eliminate the need to develop and maintain an independent office staff for the foundation. They also provide the convenience of allowing trustees to access foundation documents from any location.

Functions that can often be outsourced include:

• Comprehensive administrative support—Making grants, writing the grant letters, preparing reports and organizing the documents.
• Regulatory compliance—Reviewing grants, expenses, and all financial transactions to ensure compliance with federal and state regulations.
• Tax compliance—Keeping up with the Internal Revenue Code relating to foundation rules, verifying the tax status of recipients, and performing due diligence on those nonprofits being considered for grant approval.
• Patriot Act compliance—Researching grant recipients and foundation donors to ensure full compliance with the Patriot Act.

Strategy #5: Don’t Go It Alone

Mid-sized foundations often feel they must go it alone—they think they are too small to engage outside expertise. However, working with an experienced investment advisor and operations administrator can relieve stress, improve foundation governance, and allow your foundation to focus more time on your chosen mission. By putting together a team of experts, you can create customized solutions designed specifically with the needs of your foundation in mind.

Be sure to clearly define the roles and responsibilities of each member of your team and identify areas in which team members can work together. Check in regularly with team members to measure progress, but delegate responsibilities and let each pull his or her own weight. Be present, alert and responsive, but avoid the temptation to micromanage or get overly involved in decisions that others are qualified to handle.

With the right team in place, you’ll be more likely to maintain your energy and enthusiasm, while achieving better results.

“No one starts a foundation to manage staff or do back-office and administrative work. That’s why it’s important to look for partners…” -Page Snow, Chief Philanthropic Officer, Foundation Source

Get Started

While your foundation is likely to have a history, mission, and personality that is uniquely its own, there are often common solutions that can be employed to improve the management of your assets and daily operations. If you find your foundation at a critical juncture—such as undergoing a government audit, discovering unexpected portfolio risks, or encountering frustration among your board of directors—it may be a good opportunity to challenge the status quo and consider new ways to solve old problems.

Even well-run foundations have room for improvement. The best foundations are constantly challenging themselves to increase their efficiency and generate proven, measurable results. In today’s market environment, there has never been a better time to review your investment strategy and operations. As part of the process, consult with experienced, independent experts who can provide you with fresh ideas and a team approach to achieving success.

Your involvement with a private foundation is a testament to your dedication to making a meaningful difference. Using best practices will ensure your experience is rewarding while maximizing the impact of your foundation’s efforts.

Collins & Company is a registered investment advisor serving individuals, families and private foundations. Founded in 1962, Collins & Company provides comprehensive investment management services, including investment policy statements and fiduciary oversight of assets, backed by objective, independent investment guidance and advice.

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