Regulations, Regulations, Regulations…  

Brandon Allen
Executive Director | Fortify Foundation

It has been such a blessing to be a part of changing the landscape for the financial future of Christian education. Just a few years ago, the nature of long-range planning often plateaued with the current admin team’s tenure. It’s not that they didn’t want to think longer but that was often limited by their ability. The hope was just to leave things better than they found it. While an endowment strategy is not a new concept, the conversation surrounding it has often been left out in the k-12 Christian school circles. Why is that? No doubt the complexity surrounding this type of strategy has played a role. 

Here are a few considerations when planning / managing an endowment: 

Uniform Fiduciary Standards of Care 

1. Understanding / Keeping up with Regulatory Standards / Laws / Other Provisions 

As if keeping up with curriculums, state safety/child regulatory laws weren’t enough, there will also be many regulations surrounding these types of funds. Keeping up with the SEC, FINRA, and UPMIFA can be a daunting task. Having an experienced team that is both familiar with and can effectively navigate this can be a tremendous help. Another problem is that this could result in higher fees which could impact your overall net returns. Fortify Foundation is set up to help ensure that these areas are covered, and your schools get the maximum benefit.  

2. Diversification of Assets 

A truly successful endowment portfolio lies in its ability to diversify. However, diversification is often limited when a fund is initially established. Most returns on small funds rely on stock markets. The difference between a small fund and a large fund is the ability to diversify and focus more on alternate investment options that often carry less risk than the ups and downs of the stock market. As of 2023, many of your billion-dollar funds have invested only 8.8% in US equities while they’ve funneled 62.61% into alternative options. If you have a fund less than $25 million, you’ve probably experienced an almost inverse relationship between those two numbers. Fortify Foundation provides you with an opportunity to mimic a much larger investment strategy than any one school can accomplish on its own.   

3. Investment Policy Detail 

Along with proper asset allocations comes proper investment policies to set certain tolerance limits. What are your investment goals? I would say the average educator’s answer would be, not to lose money! How can I justifiably make that statement? Well, for one, I’ve worked in and around 4 different schools. Two, we know the average school’s ability to invest has been minimal. It’s only been post pandemic that low risk options have been present, and many schools have had the ability to invest due to various grant opportunities. Establishing an investment policy hasn’t been needed in most situations and so most have limited understanding of where to begin. On top of that, ensuring the fund is rebalanced at the proper times to avoid unintended shifts can keep your growth from taking a nosedive. A proper investment policy will help keep your fund’s growth on the right track.  

4. Prudency in Management 

An investment strategy in the endowment world is / should be uniquely different. While there can be a lot of touts regarding investment returns in comparing varying financial institutions, the key is to look at the longevity of their strategy and what has been produced in a 10 or even 20-year timeframe. We often hear of individuals excited about double digit returns (especially coming out of 2023). It is exhilarating to have those seasons and moments, but the reality is even the largest endowments have produced around a 9% return. There may be opportunities you know of that can seemingly generate higher returns, but those decisions could very well get you in trouble if you aren’t careful. Yes, we all want to see investment growth. But there is a fine line that can be crossed if a prudent manager isn’t carefully selected.  

5. Accounting 

Part of the regulations in the endowment world is proper accounting for the fund. As with any fund opened at Fortify, behind the scenes there should be two accounts listed. One account is tracking the agency portion, and the other account is tracking the designated portion. Yes, both school funds and donor funds need to be accounted for separately. Additionally, keeping up with the additional tax receipts, fund statements, reports can also be a vast undertaking for your team.  

6. Spending Policy 

Noting that the purpose of endowment is focusing on an established principal and living off the returns, some key factors in a spending policy would be general economic conditions, effects of inflation, expected returns, available resources, and even the overall purpose of the established fund. Endowment funds that have existed for decades have historically produced a good 4-5% in spendable based on previous averages. Noting that the typical university level fund produces around 8-9% in returns (10-year basis), then the spendable figured needs to be adjusted to ensure the purpose of the fund is always kept.  

7. Avoid Conflicts of Interest 

We’ve talked a lot about the nuts and bolts of regulations but there is one other key component we must assess as believers. This is ensuring the overall purpose of your organization’s mission is continued to be met. Internally, we all have a guiding mission, and that mission often sets the precedent for our own rules / regulations. If we have certain expectations for staff members and students, wouldn’t we also want to keep that consistency with how we invest?  I’ll be the first to say that there is no perfect strategy. But keeping a conscientious pulse on what is being invested in to make sure that there is no conflict of interest or direct violation of Scripture needs to be considered. This is just on the investment side. Then there is the conflict of interest as to which of your team members, or perhaps family members, has access to the investment or is a part of the investment. Yes, even that can create a conflict of interest. I imagine most of us have other policies in place that help us navigate this arena and in the world of investments, it should be no different.  

Key Takeaways: 

Endowment funds can be a lot to manage. The fiduciary responsibility alone should give potential room for the pause. The greatest prudency should be trusting the professionals just as parents of your student body trust you with their child’s education.  

Fortify Foundation takes the legwork and stress out of endowment management for Christian schools. Whether you are in the beginning stages of setting up a fund or have a current fund but want access to a more optimal strategy, we would love to talk to you about how we can point you in the right direction!  

If you’d like to set up a brief meeting, don’t hesitate to reach out! 

As you explore the concept of endowment, we would love to have a conversation with you and your board about how this can create a more sustainable future for your school! Contact us at 803-615-3037 ext. 1 or Click HERE to schedule a call.