FOUNDATIONS & ENDOWMENTS CASE STUDY
A consultant approached Nottingham with an investment administration problem, searching for initial ideas only. The consultant’s client was the largest and most diverse University system in the country with multiple campuses. The University system was seeking to offer a series of investment options, where the collective assets of the campuses, pooled together, would allow the University system to negotiate better arrangements with a custodian, securities lending agent, and multiple investment managers.
Pooling the assets together was simple. The challenge was addressing the desire of each constituent campus to report back to their management and board on the investment positions and results, and to keep track of the underlying assets, especially charitable remainder trusts, given to each campus with specific instructions on the disposition of capital gains and income.
Nottingham proposed an accounting system where the University system assets were pooled into accounts, differentiated by investment style (long term fixed income, short term fixed income, government only fixed income, equity, alternative investments). Each account is treated like a mutual fund, with daily net asset value calculated, capital gains allocated on a per share basis (for accuracy), and income accrued daily and paid monthly, or upon liquidation of an underlying account.
The accounting system and structure Nottingham has developed has allowed the University system to:
- reduce the number of investment accounts it maintains internally
- negotiate significantly lower custodian fees
- create accounts that are large enough to merit a securities lending program, which generates enough new income to pay for all administrative costs of the accounting system plus several hundred thousand in additional net income to the portfolios
- report the investment position and performance with a mutual fund level degree of accuracy, at the portfolio level, each.