We’ve all heard the news: University endowments and charitable funds across the country are grappling with huge investment losses this year. Last month, Yale University reported that its endowment lost 24.6 percent of its value in the fiscal year ended June 30. That news came on the heels of Harvard University reporting that its endowment fund lost 27 percent, while Stanford University’s lost 30 percent.
The National Association of College and University Business Officers reported that higher education endowments might experience an average loss of 23 percent of their value in the last fiscal year.
As a donor and investment manager, I have little tolerance for such steep investment losses. Moreover, I have no tolerance for accepting mediocrity. After spending considerable time and resources building a substantial asset base, what charity can afford to rely on average or less-than-average portfolio returns?
While I strongly believe that underperforming charities should be reviewed and held accountable to seek top-performing investment managers, I believe with equal conviction that successful investment strategies ought to be recognized for achieving results well above the norm.
These beliefs are two of the main reasons why my firm, Karpus Investment Management, launched the Karpus Charity Challenge, which invites charities to compare their investment performance over the past 10 years to our record of balanced account composite performance for the same period. We believe that the Karpus Charity Challenge provides a unique way to recognize, support and identify high-performing charities.
If a charity that has accepted the challenge has outperformed the Karpus balanced account composite, we’ll make an immediate contribution to the charity. The contribution will be based on the size of the charity, ranging from $25,000 for charities with assets of $10 million to $25 million up to $100,000 for charities with assets of more than $100 million.
If the charity has not performed as well as Karpus’ balanced account composite for the period, we request only that the governing body of the charity consider retaining Karpus to consult on or manage at least 25 percent of the charity’s funds.
Ultimately, we’re looking to donate a total of $500,000 to endowments and charities. I want to give charities an opportunity to compare their results with those of a top-performing money manager right in their backyard. Top performance clearly can help charities perform their missions.
I have no problem whatsoever putting $500,000 on the line to recognize those charities that have demonstrated success in investing. I also believe it’s the responsibility of consultants and investment managers to make money for their organizations. From my vantage point, I can’t think of a better way for charities to examine whether they are getting the most out of their donors’ dollars without any obligation.
On a personal note, I continually examine the charities where I donate any of my family’s money. I know that the majority of my family’s assets will someday go to charities. What would happen to those assets if they were managed poorly? They would lose their overall value, and my family doesn’t want to see that happen. When the time comes for my family’s assets to go to charities, we’ll want to know that the assets will earn money and gain value over time, benefiting the community and the causes that we hold dear. So which charities are financially responsible enough to deserve my support, your support—our support? As a fellow donor and investment manager, I think it’s time to find out.
George Karpus is president and CEO of Karpus Investment Management. For more information on the Karpus Charity Challenge, including information on how a charity can qualify, go to www.karpus.com/challenge.