July 01, 2021
Case Study: How Clients Partner with Glenmede
The two clients featured in these case studies faced the challenge of growing their endowment while adhering to their organization’s mission: one was seeking to increase its allocation to impact investments, and the other committed to managing risk in a low-interest-rate environment.
The Putney School Refines Its Endowment to Manage Volatility
The Putney School, a private secondary educational provider in Putney, Vermont, values and practices progressive teachings. The school also diligently manages its investment portfolio with ongoing monitoring of the portfolio’s composition. Recently, this review led the school’s Investment Committee to conduct a comprehensive assessment of its endowment portfolio.
“We periodically review the way our investment resources are allocated to ensure we meet the various factors that drive how we invest in our endowment,” says Randall Smith, Assistant Head of School and Chief Financial Officer.
Historically, the school has had two primary investment objectives: meet annual operating expenses and grow the endowment. Smith says Putney hasn’t run an operating budget deficit in his 21-year tenure. “We have adequate tuition revenue and other sources of income to run our operations, without having to borrow for cash flow purposes or dipping into endowment funds,” he says.
The Investment Committee’s review, then, focused on the school’s endowment portfolio, where the priority was to achieve a delicate balance between generating sufficient capital appreciation to grow the portfolio and maintaining a somewhat defensive capital preservation posture.
“A key goal for our face-to-face review was to ensure that Putney continued to be in a position to grow while avoiding taking unnecessary risks with its endowment,” says John Church, Glenmede’s Director of Endowment & Foundation Impact Portfolio Management.
A full-circle fixed income discussion
In a half-day face-to-face session, Church and a team of Glenmede fixed income specialists led a spirited and thorough discussion with the Investment Committee on risk management — specifically, the wisdom of holding so much of the school’s endowment in fixed income assets with essentially negative real yields.
“We really conducted a full-circle fixed income discussion and explored a number of questions,” says Church. “What’s the reason for fixed income? What’s the current environment? What are the potential trade-offs if we move in another direction?”
Among those directions, the group evaluated the possibilities and costs of hedging strategies through options such as collars and protective puts. The group considered those alternatives and determined the most prudent adjustment of the Committee’s approach was to migrate some of the endowment’s fixed income assets into the safety — and ironically, potentially higher yields — of cash. When the discussion pivoted to the equity portion of the portfolio, the group addressed the recent significant run-up in valuations. Glenmede and Putney explored a strategy that could achieve more efficient and risk-adjusted returns via variable beta equity strategies. The team determined a move toward smaller and mid-sized companies, both domestic and international, was an effective way to help capture future values in the equity markets.
“The school profited from rich U.S. large-cap valuations, but the Committee recognized the value of a forward-looking approach,” says Church.
A key portfolio component: social responsibility
One key topic in the equity strategy discussion was environmental, social and governance (ESG) investments, in which the Putney portfolio was already fully engaged.
“One of the initial reasons we partnered with Glenmede is that our students were interested in divesting from oil- and carbon-based companies and brought those concerns to the Investment Committee,” says Smith. “But as we explored the issue with Glenmede, we learned of other sustainable approaches that reward companies for responsible behavior, with a tie-in to competitive investment performance. It struck the balance between what the Investment Committee and the students were looking for.”
The ESG overlay has not negatively impacted returns, Smith notes, because the investing parameters are not unreasonably onerous. “It’s not a ‘don’t invest in this group’ dictate. Rather, we want companies that are showing consistent progress in the ESG area. We rely on Glenmede to bring us companies that meet those standards.”
“Social responsibility is a measure of investment quality,” adds Church. “The policy in place is much more about screening toward the good, not screening out the bad.”
Seeking to reduce risk in two ways
At the end of the half-day session, the Putney/Glenmede team had made adjustments in the endowment in an effort to significantly reduce the interest rate risk profile from the fixed income portfolio, as well as recalibrated the equity portfolio to focus on holdings with less exposure to market excesses.
Over the past six years, Glenmede and The Putney School Investment Committee have had several face-to-face follow-up meetings at the school to make ongoing adjustments in response to market fluctuations and the institution’s own evolving priorities. Those visits enabled the Glenmede team to form a strong bond not only with the school’s financial professionals but also with its students — a partnership that continues today.
“Glenmede stands separate from any other institution in its willingness to come and visit the school,” says Smith. “They’ve been guest instructors; they’ve sat down with our students and faculty regarding ESG issues. They’re not just investors and stewards of our resources. They’re also teachers. And that’s really important to us.”
How the Tecovas Foundation Supports Systemic Change
The Tecovas Foundation is a family foundation that supports systemic change by ensuring people have access to the tools they need to advance bold initiatives. The Foundation distributes annual grants to a range of targeted focus areas, including social innovation and entrepreneurship, the arts, and regenerative agriculture, among others.
The Foundation tends to regard its far-reaching work in terms of where it can help leverage community-driven work, according to Trustee Mary Galeti. “We care about people having the space to live a healthy and safe life that feels meaningful to them. Can you educate your children? Can you get the medicine you need? Can you work a job that feels fulfilling to you? If not, what are the structural barriers in your way and how might we help?”
Driven by that philosophical underpinning, the Foundation makes targeted investments in several issue areas, and in unique ways. “We often grant general operating support, as we know the organization will know what it needs most. Sometimes that may include an organization’s second or third staff member, executive coaching or an in-person meeting for an otherwise globally distributed team,” says Galeti.
Crossing family generations
The Tecovas Foundation’s trustees span multiple generations. The Foundation was founded in 1998 by Galeti’s grandmother, philanthropist Carol Bush Emeny, and is now largely in the hands of her grandchildren. With the generational shift, the investment conversation has moved toward impact investments. While the Foundation’s goal is to ultimately move the portfolio toward 100% impact investing, Galeti says “some foundations still believe that impact investing will yield lower returns. We know that’s not true, and we keep compiling evidence to prove it, and we hope that eventually it will become accepted wisdom.”
The generational disparity also shows in the Foundation’s portfolio holdings. “On one hand, we have legacy assets dating from 30 years ago,” Galeti notes, “and on the other hand, the Foundation is investing in functionally new, mission-related ideas that are relatable for the majority of the board, who are in their 30s. So you have differing values between old and new.”
A solid working collaboration
To both identify potential investment areas and keep its portfolio in good shape, Tecovas relies on the stewardship of Glenmede. “Our perspective is to ensure we help generate a steady return on the portfolio,” says John Church, Director of Endowment & Foundation Impact Portfolio Management. “We want the Foundation to be in a position to keep supporting its grantees, while also growing the portfolio to keep pace with inflation.”
At the same time, Church and his team look to identify diverse focus areas and ideas that can drive change. Tecovas and Glenmede often work in lockstep to identify those areas, exchanging suggestions and vetting issues and organizations.
Private markets and other strategies
One strategy Tecovas has increasingly used, with Glenmede’s help, is private investments, where innovation and impact intersect to advance the Foundation’s mission. “In private markets, we can target more specificity around investments, with the potential to realize more tangible results,” says Jennifer Wong, Impact Private Investments Portfolio Manager. Tecovas invests directly with early-stage impact investment managers with expertise in specialized areas such as clean renewable energy, emerging markets and other strategies.
The Tecovas Foundation’s trustees have brought impact-driven private investment ideas to Glenmede for investigation. The team serves as a valuable sounding board and prudent advisor, returning with practical strategies. “We review and provide feedback in terms of what we think of a strategy and how best to utilize it in the portfolio,” Wong says.
The team also flags concerns when a potential investment may not achieve a sufficient balance of intentionality and financial viability. “Glenmede adds this hold-your-horses-you-may-not-want-to-do-that-for-these-reasons gravitas that I appreciate,” Galeti says. “From a client perspective, there’s no better feeling than being known and having your thoughts anticipated.”
Capital needs to keep flowing
In response to an evolving global political, health and economic landscape, the Foundation plans to continue identifying specific areas of need and putting its capital to work.
“My aunt, who has practiced tai chi for 50 years, equates capital with water,” Galeti notes. “She says if it stagnates, it’s unusable. Capital needs to keep flowing.
“We’re in a K-shaped recovery, in a globally unsustainable economic environment, during a massive pandemic, with a new administration. We’re prepared to respond to whatever earthquake occurs. We can do incredible work because Glenmede does incredible work for us.”
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