Four tips for deal­ing with a foundation’s assets

Boards of trus­tees are taking on an incre­asing amount of respon­si­bi­lity nowa­days – inclu­ding when it comes to mana­ging the foundation’s assets. The foundation’s work is made more effi­ci­ent and effec­tive by drawing up invest­ment regu­la­ti­ons, moni­to­ring compli­ance on an ongo­ing basis and deal­ing with cost-rela­ted issues in a trans­pa­rent manner. It also makes it easier to plan funds. By speci­fi­cally addres­sing the various fees and redu­cing conflicts of inte­rest, the board of trus­tees can ensure that the assets are mana­ged in the best possi­ble way.

Asset deve­lo­p­ment

In the past, there was little pres­sure for many foun­da­ti­ons, espe­ci­ally smal­ler ones, to profes­sio­na­lise asset manage­ment. The Super­vi­sory Autho­rity for Foun­da­ti­ons also focu­ses more on compli­ance with the foundation’s purpose than on finan­cial invest­ments. Nevert­hel­ess, it is in the inte­rest – and perhaps in the future also the duty – of every foun­da­tion that the board of trus­tees ensu­res a market-compli­ant deve­lo­p­ment of assets. By invol­ving inde­pen­dent invest­ment experts and adap­ting invest­ments to custo­mary market stan­dards, the board of trus­tees can ensure the long-term finan­cing of the foundation’s purpose.

Invest­ment regulations

Ideally, the regu­la­ti­ons should contain ranges for asset clas­ses, any rest­ric­tions that must be complied with and a bench­mark for objec­tively compa­ring invest­ment perfor­mance. Compli­ance with the crite­ria set out in the regu­la­ti­ons is moni­to­red by a respon­si­ble person or a commit­tee, and the portfolio’s perfor­mance is analy­sed against benchmarks. 

Perfor­mance benchmarking

Perfor­mance bench­mar­king is a key compo­nent of profes­sio­nal asset manage­ment and gives foun­da­ti­ons the oppor­tu­nity to objec­tively assess the effi­ci­ency and achie­ve­ment of their portfolio’s objec­ti­ves. A bench­mark is a fixed stan­dard against which the perfor­mance of the port­fo­lio is measu­red. This allows the board of trus­tees to view perfor­mance not only in abso­lute terms, but also in rela­tion to market deve­lo­p­ment and in compa­ri­son with simi­lar portfolios.

Fee struc­tures 

A key issue in inves­t­ing is the fees that arise in asset manage­ment. This includes manage­ment costs for invest­ment support provi­ded by an asset mana­ger or a bank, cust­ody account fees for the safe­kee­ping of secu­ri­ties and tran­sac­tion fees for trading. Often these direct char­ges are bund­led toge­ther as an ‘all-in’ fee, which faci­li­ta­tes trans­pa­rency and plan­ning, but detailed clarity is nevert­hel­ess needed to ensure that these costs are reasonable. The amount of the fees depends on the size of the foundation’s assets and the speci­fic invest­ment requi­re­ments that influence admi­nis­tra­tive expenses.

Trans­pa­rent charges

In addi­tion to the direct fees, many invest­ment products incur addi­tio­nal product costs that are often not appa­rent at first glance. This includes fees included in invest­ment instru­ments such as ETFs, funds, struc­tu­red invest­ments, hedge funds and private market invest­ments. These costs are finan­ced directly from the product itself and can only be traced by study­ing the product specifications.

Effi­ci­ent tools

A criti­cal aspect of working with asset mana­gers is the selec­tion of effi­ci­ent instru­ments. Opting for the asset manager’s own funds or struc­tu­red products is rarely the chea­pest or best choice. In addi­tion, retro­ces­si­ons and other incen­ti­ves may exist that might encou­rage the asset mana­ger to give prefe­rence to instru­ments that gene­rate addi­tio­nal revenues. 

Costs for foreign currencies

Another rele­vant cost factor, which is often unde­re­sti­ma­ted, is the issue of fees for buying and selling foreign curren­cies, which are usually not speci­fi­cally mentio­ned by the execu­ting bank.