Connections for Success



The Investment Manager: Finding the Right Fish in the Sea
James Quaid

Say that your organization’s investment portfolio has recently grown in size and complexity due to receiving a new endowment. Moreover, you may be relying on proceeds from the investments to finance your organization’s programs, and you have concerns that your staff may not have the time or expertise to wisely invest and monitor these funds.

What should you do? You likely need to hire an investment advisor to assist your organization with its investment activities. But, how do you find the best person to make prudent investments while meeting your organization’s investment goals?

Where to Start

Finding the right investment consultant or manager for your organization starts with identifying a pool of qualified candidates with proven track records and requesting detailed proposals on how they would manage your investments. Experience working with not-for-profit organizations and related endowments is the key.

Ask for referrals from peer organizations, your board members and your advisors, including your CPA firm. Make sure that the individuals and firm you consider have the right experience and qualifications.

How to Compensate the Investment Manager

Trust is important in all business transactions. When the transactions involve your endowment and investments, trust becomes critical. To help you select an investment manager who fits the bill, consider whether you would wholeheartedly trust this person to handle your personal life savings.

Your investment or finance committee members should ask candidates to outline in their proposal how they will be compensated for their services. Generally, investment managers charge clients based on one (or a combination) of three structures:

  1. Fees or commissions on trades;
  2. A percentage of the asset values they are managing; or
  3. An hourly rate.

Many not-for-profit organizations insist that their investment manager’s compensation be based on asset value or hours, rather than commission. Trade commission structures can give investment managers an incentive to make trades — even when they are not in the best interests of the organization.

After reviewing the candidates’ proposals and checking their references, allow search committee members to talk to other not-for-profit leaders to gauge their satisfaction level with your short list. Then select two or three firms to interview.

What to Ask the Candidates

Committee members should interview manager candidates carefully. They should look for someone who closely follows market movements and trends, has a thorough understanding of different types of investments, and is capable of creating and managing a balanced portfolio that can grow without incurring excessive risk.

Understanding the candidates’ investment process, along with their long-term results, is also essential. Other desirable qualities include experience assisting investment committees in drafting and changing investment policies and an ability to clearly explain the processes and considerations behind their investment decisions.

To get at some of these issues, committee members might ask candidates their advice for an organization that is more (or less) risk averse than the traditional not-for-profit organization. Or based on what they know of your organization, what changes to the current investment strategy might they propose?

As they answer such questions, note whether the candidates express empathy toward the kinds of problems facing your organization and suggest investment solutions specific to your organization and its needs. Also ask for examples of the reporting they will provide to your investment committee or board as well as how often then intend to report results to the investment committee.

Finally, ensure candidates have the time to properly manage your investments. How many hours per month do they anticipate spending on your account? Will they be able to attend off-hour meetings with your investment committee if it becomes necessary?

An Important Decision

Unless you are lucky enough to have the right kind of expertise in-house, consider hiring an advisor to manage your investments. This is especially true if you depend on your endowments to generate monthly revenue. Select your investment manager carefully — your bottom line could depend on your choice.

For assistance in identifying the right investment manager for your organization, contact Jim Quaid at [email protected] or call him at 312.670.7444.

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