What is the 2030 agenda for foundation asset management?


Tobias M. Karow


In Germany, the asset management of foundations is facing a serious problem: Due to their innate risk-adversity and regulatory tendencies, foundations and NPOs never had to watch out for anything else than bonds. Even today, German foundations love bonds and the regular earnings that (used to) come along with them, and for decades these have been the basis for their philanthropic doing. As is well known, this comfortable situation has changed drastically with the low interest policies of the US and European central bank, forcing German foundations to build up know-how and stocks in new and more profitable asset classes. Thus, the 2nd Virtual Day for Foundation Asset Management, tried to address the key questions for German foundations in order to bring back financial power and the main topics for foundation asset management until 2030.

The outlined problem is hard to understand for foundations in the UK, Sweden or the Netherlands: Traditionally, German foundations don’t invest their capital through a broad asset allocation framework, ranging from bonds, stocks, real estate, REITs, infrastructure, microfinance and perhaps a portion of mission related investment. Instead, most foundations in Germany used to invest mainly in bonds, and they were fine to expect a yield of about four per cent per year — just enough money to fulfil their philanthropic duties. While this expectation could already be considered unambitious in times before the low-interest era, it is clear that it does not meet the situation on the capital markets today, a fact which puts considerable pressure on the project performance of German foundations.

One solution could be to invest in mutual or multi-asset funds specialised on the needs of foundations (in Germany, we call them ‘Stiftungsfonds’). However, many of these funds also invest 70 or 80 per cent of their capital in bonds, so instead of being the solution, they are part of the problem. Instead, what German foundations should discuss is how to widen the mix of assets they can invest in, and they should learn to diversify. They should also discuss how to delegate the management of their assets and change their role from being an active asset manager to that of an asset management controller. And lastly, they should write down a concise asset management framework and build up a solid decision documentation following the business judgement rule.

Admittedly, this is not the latest cry of sophisticated asset management, sounding more like solid groundwork — but for many foundations in Germany, especially the smaller and middle-sized ones, this is unknown territory. Being mostly staffed on an honorary basis, they simply do not have the resources to really work on the management of their assets, and they have a considerable lack of competence when it comes to financial questions. So instead of doing the wrong thing, they rather don’t do anything at all — ignoring the fact that by confronting financial questions today, they would do the right thing for tomorrow and maybe even save their own future. What we worked out at the 2nd virtual foundations asset management summit where three things could help foundations to step into this unknown country, beginning with one small step.

Of course, this means cutting off old braids. For many German foundations, this means to invest now and not to wait for increasing interest rates, stopping to refuse to invest in stocks, real estate, infrastructure and some high yield bonds, and no longer being resistant to advice. But, as became clear during the summit, there are already some foundations in Germany, mainly the bigger ones, that are headed towards the right direction and which are extremely professional in the handling of their assets.

What we’ve learned from the large German foundations like ZEIT-Stiftung, Stiftung Polytechnische Gesellschaft, Karl Kübel Stiftung or the WWF was that they all found a way to diversify foundation assets, they focussed more on income than on preservation of capital because of the needs for their foundation purpose. And, last but not least, they understand that bonds are not the only part of the game but one part of the game, beside equity, infrastructure, real estate, microfinance and some illiquid asset classes. We learned on our event, that there is an opportunity to refresh the foundation asset management for all German foundations, but as a foundation you have to diversify, to delegate and to document more than you did before. Also, a foundation has to lift off from fixed quotes for some asset classes because there is no duty to invest only 30 per cent of foundation assets for example in equity. The larger foundation fixes a target for the income level and fix than the bricks delivering this income, and with this they change their view on asset classes and on asset management solutions. So, the larger foundations have an agenda 2030 for their asset management, and this is something, the smaller foundations in Germany have to copy themselves.

So, to sum up, what we’ve learned, I think that German foundations should take a look to their colleagues in the UK, in the US, in the Netherlands, to get an impression on what it means to invest foundation assets in a contemporary lens and to have an agenda to make foundation assets resilient to crises like the Corona-crash in March 2020. A foundation portfolio is very vulnerable through investing only in one asset class, perhaps not when the crash at the stock markets is raging like a storm, but with a view on 2030, and beyond. But this is exactly the view foundations should have, the daily business of foundations asset management should be investing beyond.

Tobias Karow is founder and CEO of the npo expert platform http://www.stiftungsmarktplatz.eu with the blog #stiftungenstärken (http://www.stiftungenstärken.de), the first TV-show for foundation’s asset management (http://www.vtfds.de) and the leading platform for fund investing of foundations (http://www.fondsfibel.de).

Tagged in: Next Philanthropy

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