A founding business officer of NBOA with 51 years of experience, Jim Pugh shares wisdom he has collected in his decades of service to independent schools. This is the eighth article in the Business Office Basics series. The series thus far includes: entry interviews when you start at a new school; trustee orientation in terms of school finance; financial reporting strategies; department budget request forms; preparing the operating budget for the board; achieving financial equilibrium; and the annual capital budget.
If your school has an endowment and investment committee, it’s likely that the CFO is the person who supports and meets with that group.
Depending on the size and complexity of the investment portfolio, your school may have an outside investment advisor who provides a detailed report in advance of the meeting. This report might look at annualized returns, comparison to benchmarks, sector allocation, country allocation, risk profile, returns by style, price/earnings ratios, sector returns by capitalization, and more.
So why would the CFO write their own report to the investment committee? It’s simple. Investment committee members benefit from reviewing a simple report at the beginning of the meeting. If your school does not have an outside investment advisor, this is all the more reason for you to create a report for the committee.
Investment committees are typically made up of investment professionals who serve on the boards of several institutions. They are busy people. Each of the schools, hospitals, museums and symphonies to which they volunteer their time has its own needs and goals. The CFO’s report helps focus their minds on your school’s particular context and situation.
It is always a good idea to discuss the report format with the investment committee chair. What information does this person think will be helpful to the committee?
This Excel file, available to NBOA members, is a sample report that shows the changes in the portfolio since the last meeting. It does not delve into the impressively technical report of the investment advisor. In one row – Row 7 here – this sample report provides an overview of the investment portfolio as a whole.
This sample report is also not as detailed as the schedule your office maintains for the audit and the Form 990. Instead, this board version lumps dividends, interest, capital distributions, and realized and unrealized gains/losses together in one column. Providing all those pieces separately to the investment committee would create unnecessary noise.
Giving your investment committee chair a concrete example of the overall picture is a good way to solicit their best thinking. Your report can also help start investment committee meetings on the right foot and make each meeting more productive.