NFPO Endowment Management Project RFI

You've just received an RFI from Mucky Lake College. This private liberal arts non-profit college, founded in 1877, just received an amazing endowment gift. One of their alumni from the class of 1965 passed away and left them a $100 million endowment gift. The money will be received in the next several months after the estate is settled. The will specifies that the principal amount of the gift (the $100 million) cannot be spent. However, the college is required to spend at least 75% of the investment eamings annually to provide endowed scholarships to worthy / needy students, fund endowed faculty chairs, provide support for innovative new programs, etc. The donor expressed a desire that the purchasing power of the gift be protected - meaning that enough should be retained such that the value of the fund keeps up with inflation. The RFI also mentions a recent law, known as UPMIFA, which the Trustees on the finance committee believe affects how a gift and fund like this is managed. Your task is simple (1) Provide a summary response to the RFI (2) prepare a summary PPT presentation for the initial discussion with the Trustees. The response should include (1) a summary explanation of UPMIFA and how it affects this activity (2)Discuss the risk / reward parameters of various investment combinations (high retum / high risk / medium reward / medium risk , low reward / low risk.) Explain to them how a portfolio can be built using a combination of low cost passive funds and ETFs which will (a) cover the purchasing power criteria (make reasonable assumptions about historic / likely future inflation) (b) provides a given amount of resources annually for the activities the donor desired to fund. (3) ideally give them at least two baseline options - one that is somewhat higher reward with more risk and one that is somewhat lower reward with less risk. TIMETABLE: 1) Please post the preliminary / draft PPT by Monday 12/3 so that we can discuss it. (Each group serves as the client's Trustees Investment Committee for the other group's presentation.)                                                                                                                          

Sample Solution