I am often asked to share my knowledge about investing and fiduciary responsibility. My experience in the financial field has given me many insights about risk, investing, and governance, which I happily share with the UUA and fiduciaries who are just beginning their service to the UUA. The purpose of this article is to build financial and regulatory awareness for those who may be early in their learning process. I believe many UU congregations’ endowments could be helped by following a few deceptively simple guidelines I share below. I wish someone had given me a “playbook” for what I learned on the field of play!
Over the course of my three decades career as an investor, financial industry executive, and independent board member, I have noted the increased professionalization of corporate and fiduciary boards. The accelerating adoption of best governance practices has positively influenced corporate citizenship. My insight and experience as a foundation board member started at the First Parish Church in Weston, Massachusetts in the 1990’s when I joined the Investment Committee at my local congregation. I learned about the risks and responsibilities of Board Committee members at a grass roots level.
I have served two terms as a member of the UU Common Endowment Fund (UUCEF) Investment Committee as part of my “giving back” to assist those who are undertaking a similar learning process. Specifically, the mission of the UUCEF is to provide a vehicle for sophisticated investment management and the resulting above median performance that is consistent with our UUA socially responsible beliefs. Additionally, the UUCEF can protect participating Investment/ Finance Committees of local congregations from the fiduciary risks to which they (possibly unknowingly) expose themselves.
Expectations for implementation of best practices for all fiduciary committees and boards have evolved substantially since I began my service at First Parish Weston. I worry that some committee and board members who currently serve may be unknowingly exposed to rules, regulations, and fiduciary standards that they are not prepared to navigate. Frankly, it is complicated. Practically speaking, it is probably statistically true that small non-profits are not as closely regulated and monitored as those of larger organizations. However, I believe we as UUs should hold ourselves to the highest practice of governance. Such high standards help UU congregations and parishioners avoid legal and regulatory dangers that can devastate endowments and the communities they benefit. To that end, here are the key guidelines that I learned as a member of the First Parish Weston Investment Committee and practice as a fiduciary for the UUCEF:
- All investment portfolios should be professionally managed. This means that at a minimum most members of an investment committee should be properly credentialed/experienced to evaluate market risks and determine reasonable asset allocation based on required rates of return. This is a balancing act, but one which needs to be thoughtfully created and appropriately documented. Even if asset allocation is outsourced to advisors, board and committee members are responsible for overseeing, approving, and monitoring those decisions, with ultimate fiduciary responsibility.
- All Investment/ Finance committees must have the skills to select managers to implement the aforementioned asset allocation. These managers can be active or passive and a committee may hire a few or many. Advisors can play a key role in manager selection. However, the board and committee retain the responsibility for having proven and documented processes for selecting, monitoring, benchmarking, and implementing manager hiring and firing. Long-term underperformance or deviation from stated investment process can be problematic for committees which do not exhibit best governance practices in these areas.
- All financial statements and investment reports should be audited regularly. This aspect of “trust but verify” has become ever more important since the era of Bernie Madoff and others who defrauded hundreds of clients – some of whom were religious organizations that did not have the proper controls and knowledge to avoid disastrous results. Controls, procedures, regulatory compliance, and audits form the basis of good portfolio oversight and are required as the bare bones of good investment portfolio oversight.
- It is critical that custody of investment assets remain independent of management of those assets in a manner that provides duplicative oversight, performance measurement, and accountability. Separation of these duties has always been important, but never more so than in the current environment where ignoring such practices is considered ignoring one’s fiduciary responsibility.
- All congregation Finance/ Investment Committees should report regularly and transparently to their constituencies. This means that the information provided to congregations needs to be audited, independently verified, and transparent. It also means that someone has to address the congregation, provide a review of the asset allocation, manager selection process, and investment performance. This individual should also be able to answer questions and address concerns. While an outsourced manager or advisor can do this work, the Committee is responsible for the insights and oversights which selected the advisor and those working directly on the portfolio. Knowledge and understanding are required.
I encourage anyone who serves on a congregation’s Finance or Investment Committee to contact the UUA Finance office to learn more about the risks and responsibilities of your service and to obtain more information about the fiduciary standards appropriate to your service.
The UUA Investment Committee and our advisors take our role as your investment manager and fiduciary seriously. All of the members of our Committee have fiduciary and institutional investment experience. The Committee Chair has a long history of non-profit and for profit board service, and has governance expertise. We work hard to meet and exceed governance best practices for endowments of our size. The Committee has documented processes and works with outside legal, audit, investment consultant, investment manager, socially responsible investment, custody, and back office experts. In addition, the UUA Finance staff has a high degree of experience and expertise, along with that of our committee members. Many of us have served as members and Chairs of our congregations’ assets, as well as in other important roles for other for profit and non-profits. We have a commitment to superior investment results and implementing those in the most socially responsible way possible. Ultimately, though, our commitment is to our fellow UUs, to UU congregations and their Finance and Investment Committees, and to the UUA’s Board of Trustees. We work hard to enable their missions.
In sum, I am proud of the work of the UUCEF and the members of the UUA Investment Committee and Socially Responsible Investing Committee with whom I have the pleasure of serving. We are aware of and work hard to implement best governance practices in the area of endowment management.
Carol C. McMullen is the former Chair of the UUA Investment Committee. She is the former President of Eastern Bank Wealth Management; Head of Global Sales at Thomson Financial; Chief Investment Officer of Global Growth Equities at Putnam Investments; and, Managing Director at Baring America Asset Management. She has served on the Board of Trustees of Newton-Wellesley Hospital (a $500 million revenue community academic teaching hospital which she chaired for over 7 years); the Board of Partners Healthcare (the $9 billion revenue parent organization of Massachusetts General Hospital, the Brigham and Women’s Hospital, McLean, Spaulding Rehab, and a series of community hospitals where she also serves on the Investment Committee overseeing $12 billion in investments). Ms. McMullen serves on the Boards of N&D Group, Sydney Associates and is an Advisor to Slalom Consulting and the Graebel Companies. She is a member of the National Association of Corporate Directors, the Women Corporate Directors Group, Corporate Directors Group (with Certification as an Advanced Professional from the American College of Corporate Directors) and Board Leaders.