Context Sensitive Endowment Investing
Adapting policy to meet operating needs

Our commitment to "Invest in Context" for our endowment clients extends beyond core investment management services. By way of example, we manage assets for an endowment fund for which the 'unrestricted assets' are pledged as collateral for a line of credit that helps smooth cash flow needs throughout the year. When portfolio values fell due to both market declines and to unexpected financial needs that had to be funded from the endowment, the adequacy of unrestricted assets to protect the line of credit was endangered.

Context sensitive investing suggested that a more conservative investment strategy would be appropriate for these funds to reduce volatility and the risk of losing adequate collateral coverage. Consequently an investment policy was established that created a moving band of risk - as market values increased sufficiently to build a 'cushion of safety' over minimal collateral coverage, the unrestricted portfolio could take incrementally more risk until its asset allocation matched that of the restricted funds. Happily, market values recovered, and investment strategy for both unrestricted and restricted funds became, once again, consistent.