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TRANSCRIPT
5/28/2010
1
Eastern Association of College
and University Business OfficersMay 24, 2010
Presented by:
Cornerstone Advisors Asset Management, Inc.74 West Broad Street, Suite 340
Bethlehem, PA 18018
www.cornerstone-companies.com
Thomas AschoffManaging Director
Kevin Karpuk, CFASenior Investment Analyst
1
Who is Cornerstone?
• With roots going back 40 years, Cornerstone advises to almost $3 billion of assets for fiduciaries and was recently ranked as one of the nation’s 50 largest independent RIA firms
• A privately owned firm that values professional development and integrity above everything else
• Two integrated teams, one devoted to plan level consulting, the other to employee benefit plans
• A conflict free advisor to our clients
• A firm built with the following goals in mind:
- Client-centered business with superior capabilities
- Fiduciary Best Practices and Fiduciary Insulation
- Risk Management
- Open Architecture Investment Solutions
- State of the Art Performance Reporting
- Superior Risk-Adjusted Returns
- Clear Communication of Results to Committees and Plan Participants
2
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Managing Risk
• No one can predict the movements of the market, but through thorough
macroeconomic insight and tactical asset allocation decisions, Cornerstone can
mitigate the shortfall risk facing our clients.
• Our performance technology allows us to have visibility of risk both at a
manager and portfolio level
• Money grows geometrically rather than arithmetically, so a dollar lost is more
damaging than a dollar gained is beneficial to overall performance
3
Open Architecture Investment Solutions
• Cornerstone currently works with over 30 custodians and 75 managers,
downloading daily trading activity and allowing for complete account
transparency.
• As an independent consultant with no financial ties to any other provider,
Cornerstone’s advice is solely in the best interest of our clients.
• Our relationship with Callan Associates, Inc., one of the world’s largest
independent consulting firms, allows us to gain leverage over service providers
that other consultants of our size are unable to match.
Money Managers /
Mutual Funds
Client/
Consultant
Custodian Execution/
Brokerage
Functions of Service Providers
(Money Management, Custody
and Brokerage) Should Be
Separate.
Consultant Should Be
Independent of Any Service
Provider and Compensated
Solely by Client.4
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State of the Art Performance Reporting
• We have combined Callan’s reporting with an internally built
database that downloads, on a daily basis, all of our clients
holdings and transactions.
• Cornerstone is a data interpreter rather than a data gatherer.
• Our focus is on risk and risk-adjusted returns within our reporting
rather than solely returns based information as many consultants
provide.
• Our client-specific reporting is flexible and geared towards
maintaining compliance with a client’s individual Investment
Policy Statement guidelines.
5
Risk-Adjusted Returns
• Our focus on managing and budgeting risk is designed to generate
superior risk-adjusted returns over complete market cycles.
• Protecting our client assets during down markets is more
important to us than maximizing return in up markets.
• We create transparency to monitor the success of both the
manager matrix and the portfolio in total by consistently reporting
the following statistics:
- Sharpe Ratio: overall risk-adjusted returns
- Sortino Ratio: excess return over downside risk
- Treynor Ratio: excess return adjusted for market risk
- Information Ratio: value added through security selection
- Up Market/Down Market Capture
6
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4
Recent Market Trends
1.15
1.2
1.25
1.3
1.35
1.4
1.45
1.5
9,000
9,500
10,000
10,500
11,000
11,500
Dow Jones Price Level (LS) vs. Euro/Dollar (RS)(12/31/2009 - 05/14/2010)
Dow Jones Euro/US Dollar
04/12/2010 VIX drops
to lowest level since
2007 (15.6)
01/14/2010 Greece
announces austerity plan
04/16/2010 Goldman
lawsuit announced
05/06/2010
“Flash Crash”
05/09/2010 EU
announces emergency
stability measures
05/10/2010
Fannie Mae
announces
$11.5 bn 1Q
loss
03/31/2010 Fed ends
mortgage purchases
03/25/2010 Healthcare
Law Passed into law
02/04/2010 Estimates of
recession job losses
adjusted up by 1 mm
7
Longer Term Market Trends
0
200
400
600
800
1000
1200
1400
1600
1800
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09
S&P 500 Price Level(Since 1980)
Series1
06/30/1998
1133
12/17/2001
1134
01/29/2004
1134
05/14/2010
1135
8
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5
Outlook for the Next Decade
9
New Thoughts on Asset Allocation
• Appropriateness of traditional style boxes?
• Rules-based versus Thematic rebalancing? What are the proper signals to
watch?
• Are you benefiting from illiquid alternatives?
• Correlation changes?
• Risk versus Uncertainty? Some things are knowable, others are not.
• Fiduciaries must leverage the technology available to them while using
common sense to make final decisions.
• Managing long-term asset growth versus intermediate spending needs
10
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6
Rules Based vs. Thematic Rebalancing
• Historically, fiduciaries have used strict rebalancing back to an “optimized
portfolio”.
• Markets have trended longer recently than one would expect.
• Market volatility has increased as headline risk, interventions and leverage have
increased.
• Optimized portfolios are the equivalent of “driving using your rear view
mirror”.
• Must see the macroeconomic forest through the trees.
11
Asset Class Periodic Table(2000-2009)
Growth
Russell:1000
(22.4%)
Growth
Russell:1000
(20.4%)
Growth
Russell:1000
(27.9%)
Growth
Russell:1000
29.7%
Growth
Russell:1000
6.3%
Growth
Russell:1000
5.3%
Growth
Russell:1000
9.1%
Growth
Russell:1000
11.8%
Growth
Russell:1000
(38.4%)
Growth
Russell:1000
37.2%
Value
Russell:1000
7.0%
Value
Russell:1000
(5.6%)
Value
Russell:1000
(15.5%)
Value
Russell:1000
30.0%
Value
Russell:1000
16.5%
Value
Russell:1000
7.1%
Value
Russell:1000
22.2%
Value
Russell:1000
(0.2%)
Value
Russell:1000
(36.8%)
Value
Russell:1000
19.7%
Growth
Russell:2000
(22.4%)
Growth
Russell:2000
(9.2%)
Growth
Russell:2000
(30.3%)
Growth
Russell:2000
48.5%
Growth
Russell:2000
14.3%
Growth
Russell:2000
4.2%
Growth
Russell:2000
13.3%
Growth
Russell:2000
7.0%
Growth
Russell:2000
(38.5%)
Growth
Russell:2000
34.5%
Value
Russell:2000
22.8%
Value
Russell:2000
14.0%
Value
Russell:2000
(11.4%)
Value
Russell:2000
46.0%
Value
Russell:2000
22.2%
Value
Russell:2000
4.7%
Value
Russell:2000
23.5%
Value
Russell:2000
(9.8%)
Value
Russell:2000
(28.9%)
Value
Russell:2000
20.6%
Free
MSCI:EAFE
(14.2%)
Free
MSCI:EAFE
(21.4%)
Free
MSCI:EAFE
(15.9%)
Free
MSCI:EAFE
38.6%
Free
MSCI:EAFE
20.2%
Free
MSCI:EAFE
13.5%
Free
MSCI:EAFE
26.3%
Free
MSCI:EAFE
11.2%
Free
MSCI:EAFE
(43.4%)
Free
MSCI:EAFE
31.8%
Markets
MSCI:Emer
(30.6%)
Markets
MSCI:Emer
(2.4%)
Markets
MSCI:Emer
(6.0%)
Markets
MSCI:Emer
56.3%
Markets
MSCI:Emer
26.0%
Markets
MSCI:Emer
34.5%
Markets
MSCI:Emer
32.6%
Markets
MSCI:Emer
39.8%
Markets
MSCI:Emer
(53.2%)
Markets
MSCI:Emer
79.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
12
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7
Asset Class Periodic Table(1990-2000)
Growth
Russell:1000
(0.3%)
Growth
Russell:1000
41.3%
Growth
Russell:1000
5.0%
Growth
Russell:1000
2.9%
Growth
Russell:1000
2.6%
Growth
Russell:1000
37.2%
Growth
Russell:1000
23.1%
Growth
Russell:1000
30.5%
Growth
Russell:1000
38.7%
Growth
Russell:1000
33.2%
Growth
Russell:1000
(22.4%)
Value
Russell:1000
(8.1%)
Value
Russell:1000
24.5%
Value
Russell:1000
13.6%
Value
Russell:1000
18.1%
Value
Russell:1000
(2.0%)
Value
Russell:1000
38.4%
Value
Russell:1000
21.6%
Value
Russell:1000
35.2%
Value
Russell:1000
15.6%
Value
Russell:1000
7.3%
Value
Russell:1000
7.0%
Growth
Russell:2000
(17.4%)
Growth
Russell:2000
51.2%
Growth
Russell:2000
7.8%
Growth
Russell:2000
13.4%
Growth
Russell:2000
(2.4%)
Growth
Russell:2000
31.0%
Growth
Russell:2000
11.3%
Growth
Russell:2000
12.9%
Growth
Russell:2000
1.2%
Growth
Russell:2000
43.1%
Growth
Russell:2000
(22.4%)
Value
Russell:2000
(21.8%)
Value
Russell:2000
41.7%
Value
Russell:2000
29.1%
Value
Russell:2000
23.8%
Value
Russell:2000
(1.5%)
Value
Russell:2000
25.7%
Value
Russell:2000
21.4%
Value
Russell:2000
31.8%
Value
Russell:2000
(6.5%)
Value
Russell:2000
(1.5%)
Value
Russell:2000
22.8%
Free
MSCI:EAFE
(24.8%)
Free
MSCI:EAFE
10.4%
Free
MSCI:EAFE
(14.0%)
Free
MSCI:EAFE
32.7%
Free
MSCI:EAFE
7.7%
Free
MSCI:EAFE
11.3%
Free
MSCI:EAFE
6.2%
Free
MSCI:EAFE
1.6%
Free
MSCI:EAFE
20.1%
Free
MSCI:EAFE
26.7%
Free
MSCI:EAFE
(14.2%)
Markets
MSCI:Emer
(10.6%)
Markets
MSCI:Emer
59.9%
Markets
MSCI:Emer
11.4%
Markets
MSCI:Emer
74.8%
Markets
MSCI:Emer
(7.3%)
Markets
MSCI:Emer
(5.2%)
Markets
MSCI:Emer
6.0%
Markets
MSCI:Emer
(11.6%)
Markets
MSCI:Emer
(25.3%)
Markets
MSCI:Emer
66.4%
Markets
MSCI:Emer
(30.6%)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
13
Benefits of Illiquid Alternatives?
• The purpose of alternative investments is to access manager alpha in a non-
correlated investment. Is it working?
Up Market Capture Down Market Capture
(80.0)
(60.0)
(40.0)
(20.0)
0.0
20.0
40.0
60.0
Group: CAI Hedge Fund of Funds Database
for 10 Years Ended March 31, 2010
Statistics relative to S&P:500
10th Percentile 41.91 35.10
25th Percentile 35.36 25.52
Median 28.51 6.01
75th Percentile 24.30 (1.67)
90th Percentile 19.94 (9.43)
BC:Aggr Bd A 9.40 (57.92)
HFR:FOF Index B 27.71 28.47
A (97)
A (98)
B (55) B (18)
14
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8
Correlation Changes
60% S&P 500/40% BC Agg 1.000
50% S&P 500/50% BC Agg
0.9938
0.9955
0.9971
1.000
S&P 500
0.9542
0.9723
0.9876
0.9150
0.9457
0.9727
1.000
Barclay’s Aggregate Bond
0.6490
0.5834
0.1445
0.7295
0.6579
0.2198
0.3917
0.3775
(0.0124)
1.000
60% S&P
500/40%
BC Agg
50% S&P
500/50% BC
Agg
S&P 500 Barclay’s
Aggregate
Bond
10 Years ending 12/31/198510 Years ending 12/31/199010 Years ending 12/31/2009
15
Risk vs. Uncertainty
Risk is the type of information that a fiduciary can quantify:
• Manager and Plan Level Risk
• Quarterly Peer Reviews
• Enforcement of Investment Policy Statement Guidelines
Uncertainty is the type of information that a fiduciary cannot quantify:
• Market Fluctuations
• Government Intervention
• Headline Risk
Risk should be understood and handled proactively
Uncertainty should be handled flexibly
16
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9
(5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0
(7.5)
(5.0)
(2.5)
0.0
2.5
5.0
7.5
Scatter Chart for 12 Quarters for periods ending 3/31/10
Standard Deviation
Ret
urn
s
CAI:Pub Fund Total DB
Public Pension Plan
IPS Benchmark
Risk – What is Knowable
17
Last Quarter Last Year Last 3 Years Last 5 Years
(10.0)
0.0
10.0
20.0
30.0
40.0
50.0
Group: CAI Public Fund Sponsor Database
for Periods Ended March 31, 2010
Returns
10th Percentile 4.35 38.92 2.16 5.25
25th Percentile 3.95 36.55 0.56 4.99
Median 3.48 32.63 (0.57) 4.39
75th Percentile 2.97 28.64 (2.03) 4.00
90th Percentile 2.23 18.74 (2.71) 3.28
IPS Benchmark A 3.70 32.79 0.15 4.10
Public Pension Plan B 2.74 27.13 1.67 4.96
A (41)
A (49)
A (33)A (70)B (83)
B (78)
B (13)B (27)
Risk – What is Knowable
18
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10
3/31/10
Quarter Ending
12/31/09
Quarter Ending
9/30/09
Quarter Ending
6/30/09
Quarter Ending
3/31/09
Quarter Ending
12/31/08
Quarter Ending
(20.0)
(10.0)
0.0
10.0
20.0
Group: CAI Public Fund Sponsor Database
1 1/2 Years Ended March 31, 2010
for 1 Quarter Rolling Periods
Returns
10th Percentile 4.35 4.33 13.64 14.12 (4.13) (9.55)
25th Percentile 3.95 3.84 12.68 12.76 (5.02) (12.13)
Median 3.48 3.39 11.34 10.93 (6.18) (13.75)
75th Percentile 2.97 2.89 10.31 9.36 (7.59) (15.17)
90th Percentile 2.23 2.23 8.26 6.21 (8.22) (16.44)
IPS Benchmark A 3.70 3.15 11.23 11.61 (7.17) (11.93)
Public Pension Plan B 2.74 3.67 9.18 9.32 (3.70) (9.84)
A (41)
A (68)
A (53) A (39)
A (68)A (22)
B (83)
B (34) B (87) B (76)
B (8)B (11)
Risk – What is Knowable
19
Beta
Deviation
Standard Residual Risk Downside Risk
0.0
5.0
10.0
15.0
20.0
Group: CAI Public Fund Sponsor Database
for 3 Years Ended March 31, 2010
Statistics relative to IPS Benchmark
10th Percentile 1.22 17.61 4.38 5.49
25th Percentile 1.16 16.80 3.36 3.76
Median 1.07 15.51 2.87 2.87
75th Percentile 0.92 13.51 2.27 2.23
90th Percentile 0.68 10.30 1.68 1.65
IPS Benchmark A 1.00 14.15 0.00 0.00
Public Pension Plan B 0.82 11.80 2.20 1.92
A (63)
A (67)
A (100) A (99)B (82)
B (85)
B (80) B (84)
Risk – What is Knowable
20
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11
Alpha Sharpe Ratio Treynor Ratio
Ratio
Information Sortino Ratio
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
2.0
3.0
Group: CAI Public Fund Sponsor Database
for 3 Years Ended March 31, 2010
Statistics relative to IPS Benchmark
10th Percentile 1.65 0.02 0.22 0.70 0.82
25th Percentile 0.49 (0.10) (1.36) 0.15 0.18
Median (0.38) (0.16) (2.31) (0.16) (0.28)
75th Percentile (1.78) (0.25) (3.58) (0.55) (0.62)
90th Percentile (2.51) (0.30) (4.32) (0.82) (0.79)
IPS Benchmark A 0.00 (0.13) (1.84) 0.00 --
Public Pension Plan B 1.07 (0.03) (0.39) 0.49 0.79
A (37) A (36)
A (35)
A (37)
B (17) B (13)
B (13)
B (15) B (11)
Risk – What is Knowable
21
Up Market Capture Down Market Capture
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
Group: CAI Public Fund Sponsor Database
for 3 Years Ended March 31, 2010
Statistics relative to IPS Benchmark
10th Percentile 121.76 125.27
25th Percentile 113.94 119.26
Median 105.33 111.79
75th Percentile 89.21 95.09
90th Percentile 66.09 57.78
IPS Benchmark A 100.00 100.00
Public Pension Plan B 90.08 80.53
A (59) A (69)
B (74)
B (85)
Risk – What is Knowable
22
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12
Uncertainty – What to Watch
Warning Sign of Trouble
More Trouble Ahead?
23
Uncertainty – What to Watch
24
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13
Uncertainty – What to Watch
25
Long-Term Growth vs. Spending Needs
• There are inherent conflicts between long-term desire to grow the Fund and
short-term spending needs.
$2,700,000
$2,800,000
$2,900,000
$3,000,000
$3,100,000
$3,200,000
$3,300,000
$3,400,000
2006 2007 2008 2009 2010
10% Increase from Current Level Remains at Current Level 10% Decrease from Current Level
$3,114,000
$3,011,000
$2,910,000
$3,300,000
$3,180,000
$3,115,000 $3,113,000
26
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14
2015 2020 2030 2050
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
No
min
al T
ota
l A
sset
s
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$14,423,792$12,377,418$10,394,131$8,688,125$7,376,260$6,690,767
$17,684,168$14,646,268$11,719,394$9,092,971$7,200,973$6,484,211
$26,526,426$20,080,190$14,609,304$10,561,243$7,738,238$6,328,355
$53,961,136$35,046,818$22,549,475$14,485,715$9,509,591$7,337,704
2015 2020 2030 2050
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
No
min
al T
ota
l A
sset
s
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$14,876,617$12,617,867$10,395,473$8,702,613$7,279,992$6,514,560
$18,418,841$14,990,598$11,876,326$9,127,032$7,224,129$6,216,677
$28,505,448$20,801,395$14,939,678$10,379,858$7,664,639$6,194,246
$60,518,537$38,189,037$23,756,813$14,743,069$9,518,187$7,091,708
Long-Term Growth vs. Spending Needs
Median Endowment Asset Allocation 50% Equity/40% Fixed Income/10% Alts
27
2015 2020 2030 2050
$0
$3,000,000
$6,000,000
$9,000,000
$12,000,000
$15,000,000
$18,000,000
$21,000,000
$24,000,000
$27,000,000
$30,000,000
Rea
l T
ota
l A
sset
s
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$13,036,249$10,999,012$9,277,238$7,670,735$6,461,581$5,818,553
$14,423,163$11,854,620$9,416,950$7,316,363$5,740,642$5,162,467
$18,063,238$13,476,589$9,536,850$6,812,190$4,905,786$4,084,867
$25,123,388$15,904,192$9,954,658$6,393,572$3,964,939$3,119,289
2015 2020 2030 2050
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
Rea
l T
ota
l A
sset
s
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$13,425,840$11,159,779$9,256,308$7,686,339$6,376,720$5,696,307
$15,226,687$12,157,673$9,547,650$7,351,643$5,688,977$4,978,373
$19,251,094$13,795,673$9,916,400$6,780,148$4,964,445$4,001,830
$27,932,420$17,069,859$10,490,472$6,432,330$4,065,461$3,006,644
Long-Term Growth vs. Spending Needs
Median Endowment Asset Allocation 50% Equity/40% Fixed Income/10% Alts
28
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15
2015 2020 2030 2050
$0
$300,000
$600,000
$900,000
$1,200,000
$1,500,000
$1,800,000
$2,100,000
$2,400,000
$2,700,000
$3,000,000
No
min
al S
pen
din
g
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$635,416$571,435$495,898$432,877$383,114$363,288
$823,330$683,367$560,358$450,976$366,192$323,219
$1,219,207$947,035$697,346$507,580$381,608$316,508
$2,605,615$1,655,775$1,106,609
$706,895$454,472$360,092
2015 2020 2030 2050
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
No
min
al S
pen
din
g
10th Percentile25th PercentileMedian75th Percentile90th Percentile95th Percentile
$649,470$574,772$500,153$433,656$379,238$354,177
$860,653$702,890$567,513$451,271$360,965$316,845
$1,304,304$988,386$720,291$506,986$380,400$307,851
$2,804,104$1,806,644$1,141,777
$726,874$451,899$347,895
Long-Term Growth vs. Spending Needs
Median Endowment Asset Allocation 50% Equity/40% Fixed Income/10% Alts
29
Asset Mix Alternatives
Median Endowment/Foundation25%25%4%0%0%
16%0%8%0%
15%0%0%3%0%4%0%0%
100%
7.28%10.59%0.40%
50% Equity/40% Fixed/10% Alts10%0%5%0%0%
28%3%0%7%
12%28%0%0%0%0%7%0%
100%
7.15%9.98%0.42%
PortfolioComponentAbsolute ReturnBroad Domestic EquityCash EquivalentsCommoditiesDefensiveDomestic FixedEmerging Markets EquityGlobal (ex-US) EquityHigh YieldInternational EquityLarge CapLong DurationNon US FixedPrivate EquityReal EstateSmall/Mid CapTIPSTotals
10 Yr. Geometric Mean ReturnProjected Standard Deviation10 Yr. Simulated Sharpe Ratio
Long-Term Growth vs. Spending Needs
30
5/28/2010
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• Underperforming endowments create pressure on
budgets/programs/staff
• Historically, there have been three principal ways to
address these shortfalls:
1) “Save” your way out of the shortfall
2) “Invest” your way out of the shortfall
3) “Fundraise” your way out of the shortfall
• Each solution presents unique challenges in today’s
economic climate
Bridging the Funding Gap
31
Challenges associated with “Saving” your way out of
the shortfall:
1) Increasing tuition and cutting aid
• Potential for decreased enrollment
• Less revenue to support operations
2) Eliminating certain programs, sports teams, etc.
• Risk of alienating key, loyal alumni groups
• Potential loss of annual support from these groups
3) Cuts to staff
• Assigns heavier burden to those that remain
Bridging the Funding Gap
32
5/28/2010
17
Challenges with the “Investing” your way out of the
shortfall:
1) U.S. and global economic data remain mixed
• How confident are we that recovery is close at hand?
2) Are we entering a period of below historical market returns?
• Adjustment in return expectations
• Impact on future spending ability
3) Can your institution afford to take on the extra risk?
• Where will the excess returns come from?
• How much risk can you afford to take?
Bridging the Funding Gap
33
Challenges with the “Fundraising” your way out of the
shortfall:
1) 2008 has left many donors feeling “less” rich
• How much support can you expect?
• Increased donor focus on internal philanthropy
2) Increased competition for dollars
• Donors are being inundated with appeals
• How is your appeal different?
3) Are you coordinated in your approach?
• Annual/Principal/Major/Planned Giving
Bridging the Funding Gap
34
5/28/2010
18
All is not lost
These challenges create new opportunities, especially in the
area of fundraising
Bridging the Funding Gap
35
Current challenges and concerns for your donors
1) Reduced values of stock portfolios
2) Reduced values of retirement plans
3) Reduced values of home or other real estate
4) Uncertainty about the future
5) Increased need for dependable lifetime income
6) Increased concern for family
Bridging the Funding Gap
36
5/28/2010
19
Current challenges and concerns for Institutions
1) Reduced budgets for salary and programs
2) Staff reductions/hiring freezes
3) Reduced values of endowment assets
4) Decreased values of charitable trusts, lead trusts and pooled
funds
5) Decreased values of gift annuity reserves
6) Fewer gifts of appreciated property
7) Increase in combined positions due to budgets
Bridging the Funding Gap
37
Opportunities created by these challenges
1) Needs for both donors and institutions continue – and increase!
2) Deferred gift plans are very popular
3) Integrated, combined gifts are on the rise
4) Great time to gather assets where donor is currently serving as
his/her own trustee
Bridging the Funding Gap
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5/28/2010
20
Approaching donors requires a new approach
1) Historically, donors give in four main ways
• Planned Gifts, Major Gifts, Annual Gifts and Initial Gifts
2) Each gift type is historically tracked, and staff is measured and
evaluated, according to type of gift
3) Communication between/among fundraising officers is typically
poor, as success and recognition for each is determined
individually, instead of collectively across the institution
Bridging the Funding Gap
39
Integration and coordination of fundraising activities is
critical to future success
Key steps to take
1) Realign goals and recognition metrics for all staff
• Embrace philosophy of “a gift is a gift is a gift”
2) Encourage communication and sharing of prospects among staff
• Focus more on securing gifts that where there are recognized
3) Educate all fundraising staff on basics of planned giving
• Current issues among donors make these gifts very appealing
• Never leave an ask without inquiring if a gift that pays lifetime
income would be appealing
4) Incorporate Board members and senior staff in large solicitations
Bridging the Funding Gap
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5/28/2010
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Success story - $1 million gift annuity
Major gift officer (MGO) meets with 74 year-old donor• Donor has made over $5 million of major gifts over the past 10
years
• Donor indicates he cannot commit to $2 million outright gift request due to current environment
– Son has lost job, requiring parental support for family
• Rather that walking away, MGO asks if a gift that pays income for life would be appealing?
• Planned Giving Officer (PGO)meets with Donor to discuss benefits of a planned gift
• Donor establishes $1 million gift annuity
• MGO and PGO share credit for the gift
Bridging the Funding Gap
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Success story - $400,000 gift annuity from unknown Revocable CRUT
Major gift officer (MGO) meets with 80 year-old donor• MGO learns that Donor created a $400,000 CRUT 3 years ago
with charity as revocable beneficiary, serving as his own trustee
• Donor indicates he cannot commit to any major gift requests as he is concerned about current income
• MGO informs planned giving officer (PGO) about the CRUT
• PGO meets with donor and learns that the donor is very troubled by the fluctuation is his income from the CRUT due to market activity
• PGO suggests converting the CRUT into a gift annuity
• Donor dissolves his CRUT, using proceeds to establish a $400,000 gift annuity
• MGO and PGO share credit for the gift
Bridging the Funding Gap
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5/28/2010
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Success story - $3 million Lead Trust/$1 million Major GiftAnnual Fund Director (AFD) meets with Widow of donor
• Spouse had given $25,000 per year for the past 10 years
• Widow , age 64, tells AFD that she has received $5 million from sale of donor’s business
• AFD suggests a meeting with MGO, who asks for a major gift of $1 million
• Widow indicates that she doesn’t need current income from the proceeds of the sale, but wants to ensure the majority of the principal is passed to her children upon her death
• MGO speaks with planned giving officer (PGO) about a blended gift proposal
• PGO suggests a $3 million 20 year CLUT paying 6%, combined with an outright gift of $1 million
• AFD, MGO, PGO and University President propose gift plan to Widow, her children and advisors.
• Gift plan is agreed to. AFD, MGO and PGO share credit for the gifts
Bridging the Funding Gap
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Conclusions
• Integration and coordination of fundraising staff is critical
to achieving your institutional goals
• Changing your approach to recognition of gifts can yield
significant results
• If deferred giving is not a part of your fundraising
activities, it needs to be added to remain competitive
• Donors still possess the ability to make substantial gifts,
but need to be approached in creative ways that address
their needs and concerns
Bridging the Funding Gap
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