A successful foundation had a long-standing relationship with a large investment bank. The portfolio had grown in size over the years, but was still invested in a series of mutual funds including those with front-end loads. The account was custodied at a local bank that charged a custody fee based on the dollar amount of assets in the account and transaction charges for each purchase, sale, and cash movement. The chief financial officer of the foundation was referred to us by a peer at another institution that had retained Massey Quick several years earlier. We were asked to examine the entire investment approach including manager selection, custody, cost analysis, and general best practices. After presenting our initial findings, Massey Quick was retained to work for the foundation on a full-time basis.
- The endowment was incurring a high percentage of fees, reducing net returns.
- Active strategies were implemented through high cost mutual funds.
- The custodial relationship was expensive, but brought comfort to the board of trustees and the committee.
The committee had done an outstanding job in crafting their investment policy statement. They had a well defined asset allocation framework and had addressed the governance issues identified by UPMIFA.
- After a thorough cost study analysis, we implemented a change in custodian, without sacrificing counter party quality that substantially reduced the fees for this service.
- We replaced the traditional custody report with a more comprehensive performance report.
- Massey Quick suggested the elimination of hedge fund of funds from the portfolio, replacing the alternative allocation with a customized portfolio of hedge fund managers across a variety of styles. This removed leveraged managers from the mix and saved our client over $100,000in fees per annum.
- The committee agreed that the endowment should move away from mutual funds into separately managed accounts. We initiated a search for replacement managers that were vetted and approved by the committee. The average savings for the equity accounts was 30 basis points per annum. The savings for fixed income management averaged 12 basis points per annum
- By moving to separate accounts, the committee received more transparency into their portfolios. Online access was granted to the committee members and staff to view the status of each of their accounts along with Massey Quick’s consolidated reporting.
Having not worked with an investment consultant previously, the committee was naturally skeptical about the amount of value we would add. The cost reductions covered a large percentage of our fees. More importantly, we brought further discipline and transparency to the investment process.