Trustee Investment Strategy for Endowments and Foundations


Trustees are responsible for the stewardship of assets and for implementing the mission of their endowment or foundation. Almost invariably trustees delegate the management of those assets to agents who are investment professionals.

In this increasingly sophisticated and litigious financial world there can be a growing gap of comprehension, exacerbated by mathematics and jargon, between trustees who are responsible and agents who are accountable.

This book aims to fill that gap. The book draws on the author’s own experience and research and that of generations of investment professionals and academics to explain the fundamentals of investment strategy.

Key features are therefore:

  • Aimed at professional trustees
  • An holistic approach to strategy
  • Avoidance of jargon and mathematics
  • Focus on principles underlying asset strategy


Over a period of more than twenty years Chris Russell managed money for some of the largest Endowments, Foundations and Pension Plan sponsors in the US, the UK and Asia. Currently he is a director of the management company of a 600 year old not-for-profit Foundation in the City of London. He is an associate of the macro economic and asset strategy research boutique, GaveKal, and a non-executive director of one of the largest dedicated pensions investment management companies in the UK and of a number of closed and open ended investment companies. These include listed companies on the New York and London Stock Exchanges investing in European and Asian public and private equity and unlisted companies involved in hedge fund strategies. He is a Fellow of the Institute of Chartered Accountants in England and Wales, a Fellow of the UK Society of Investment Professionals and a Fellow of the Royal Society for the encouragement of Arts, Manufactures and Commerce.




1. Introduction.

1.1 Endowment fund characteristics.

1.2 Constraints on endowments.

1.3 History rhymes.

1.4 The US endowment experience.

1.5 Structure of the book.

2. Language of Return.

2.1 Economic return.

2.2 Financial return.

2.3 ‘Other income’ not return.

2.4 Income, capital and ‘total return’.

2.5 Real and nominal return.

2.6 Absolute and relative return.

2.7 Arithmetic and geometric return.

2.8 Time-weighted return and money-weighted return.

3. Elements of Return.

3.1 Deriving return.

3.2 Risk-free return.

3.3 Premium for risk.

3.4 Equity risk premium.

3.5 The eighth wonder of the world.

3.6 Valuation change.

3.7 Drivers of return.

3.8 Scenario analysis.

4. Understanding Risk.

4.1 Description of risk.

4.2 Pascal’s Wager.

4.3 Chance.

4.4 Co-movement and common factors.

4.5 The greek alphabet.

4.6 Confidence.

4.7 Consequences.

4.8 Endowment fund risk.

5. Spending Rules.

5.1 The endowment dilemma.

5.2 Micawber’s rule.

5.3 Pattern of flows.

5.4 More scenario analysis.

5.5 Determining an operating rule.

6. Assets for Strategy.

6.1 Back to the future.

6.2 Investment approach.

6.3 Classification of assets.

6.4 Asset categories.

6.5 Equities.

6.6 Private equity.

6.7 Real estate.

6.8 Commodities.

6.9 Hedge funds.

7. Legal, Social and Ethical.

7.1 Quis custodiet ipses custodies?.

7.2 Tax matters.

7.3 Extra-financial issues.

7.4 Corporate governance.

7.5 Corporate social responsibility.

7.6 Socially responsible investment.

7.7 Program-related investment.

7.8 Global view.

7.9 Reality check.

8. Understanding Strategy.

8.1 Resource assessment.

8.2 Defining needs.

8.3 Quantifying needs.

8.4 Spending rule.

8.5 Operational assets.

8.6 Intergenerational assets.

8.7 Review.

9. Implementing Strategy.

9.1 Investment policy statement.

9.2 Trustees of an endowment.

9.3 Investment committee.

9.4 Investment staff.

9.5 Risk tolerance and control.

9.6 Operational asset management.

9.7 Intergenerational asset allocation.

9.8 Benchmarks and performance.

9.9 Consultants.

9.10 Selection of asset managers.

9.11 Costs.

9.12 Custody.

10. Synopsis.

References and Reading Matter.



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