Monday, April 28, 2014

Do Actively Managed Endowment Funds Really Perform Better?

Perhaps you've seen the headline that is making rounds and has investment managers elated – actively managed endowment funds outperform their peers. The conclusion comes thanks to a study by the Commonfund Institute (available here) that examined data from the NACUBO-Commonfund Study of Endowments Dataset (covering 2006-2013).

While the conclusion is an intriguing one that runs counter to conventional wisdom about active vs. passive investment approaches, I don't think the conclusions are supported by the methodology. To elaborate on this, I will first explain what the study's approach was and then consider its flaws.

Wednesday, April 23, 2014

A Second Look at Zuckerberg's Philanthropy

After two consecutive years of substantial gifts to the Silicon Valley Community Foundation (SVCF) by Mark Zuckerberg & Priscilla Chan (hereafter, Z&C), many were ready to announce a new wave of philanthropy where the wealthy put their resources to use more quickly than the traditional private foundation route. As I discussed at the time, there is much still to be known about their gifts to determine the extent of the departure from tradition. In recent weeks, however, the pendulum appears to have shifted the other way, with Mark Benioff dismissing gifts by Z&C as little more than a tax writeoff.

While I still contend that time will tell how transformative the Z&C approach is, some early data is suggestive of their gifts being very similar to gifts to a private foundation (and further away from a standard public charity or even the average donor advised fund).

Consider the spectrum of possibilities: at one end is the expectation that all donations are immediately put to use, while at the other is the Benioff contention that the donations are not being put to use at all. The question is where in this spectrum do the Z&C gifts lie?

The short answer is we don't yet know. But, that won't stop me from making a few educated guesses based on available data.

Here are 3 benchmarks to consider:
1. What do private foundations payout on average?
2. What do other donor advised funds (DAFs) payout on average?
3. What does the SVCF payout on average absent the Z&C gifts?

The next figure compares the 2013 payout rate at SVCF with the three benchmarks.

The figure suggests that the Z&C gifts have pushed SVCF away from the higher DAF payouts to behave more like a private foundation in terms of payout rates. And, as long as we're doing back-of-the-envelope calculations, one can even try to roughly infer the specific payout rate of the Z&C gifts in 2013. Take the average SVCF payout rate from 2008-2012 and apply it to the other assets under management in 2013 (approx. $2.728 bil). Compare that figure ($344 mil) to the actual payouts ($367 mil) to get an estimate of Z&C-related payouts ($23 mil) -- this represents about 2.4% of the value of the Z&C gift given at the end of 2012, a relatively low payout rate.

Taken together, the early evidence suggests that the new philanthropy ushered in by Z&C is much like the old philanthropy. But, as more information arrives on the evolution of grants and approaches of SVCF and its funds, much more can be said.

Now, the fine print on the data:
1. The private foundation average (mean) comes from the most recent year of foundation payout data (2009) from the Foundation Center.
2. The DAF average comes from the Nonprofit Trust's 2013 Donor Advised Fund Report.
3. The SVCF payout figures come from the grants to assets under management (at year end) derived from their annual financial reports. The 2012 assets under management was reduced by the estimated amount of the Z&C gift since that gift was made at year-end and not available as a grant.
4. The estimated SVCF payout figure from 2013 is derived from their 2013 factsheet, with the 2013 assets again adjusted by the estimated amount of the Z&C gift at year-end.

Wednesday, April 2, 2014

What Happened to the Promise Keepers?

Remember The Promise Keepers? The organization was a religious, cultural, and even political phenomenon in the late 1990s and early 2000s. Now, as it launches another major endeavor, the organization seems to have lost its hold on the public zeitgeist. Though financial statements cannot tell the entire story of an organization and its trajectory, they are often informative. And, as they like to say, a few pictures are worth a few thousands words. With this in mind, below are presented four financial indicators for the organization since 2001, along with trendlines ...

(Amounts reflect gifts, grants, and contributions received from the Form 990 Support Schedule)
(Amounts reflect total assets from the Form 990 Balance Sheet)
(Amounts reflect compensation from trustees, officers, or key employees from the Form 990 list)
(Amounts reflect Other Salaries and Wages from the Form 990 Statement of Functional Expenses)