In 2004, PW Advisers was asked to analyze the investments of a trust for a non-profit beneficiary. The trust is managed by a small group of trustees who oversee the investments and coordinate disbursements to the beneficiary. PW Advisers assisted the trustees in developing an investment policy statement and implementing a new asset allocation policy.
Issues: The trust's investments were weighted towards income producing real estate assets. These assets produced a steady flow of income but were highly illiquid. The income producing ability of the trust was dependent on a relatively few physical properties. The remainder of the portfolio was invested in individual equity and debt securities. On the surface, the assets appeared to be inadequately diversified.
Solutions: Upon closer review, most of the real estate was deemed by the trustees to be strategic as most were near the beneficiary's primary location. In addition, the needs of the beneficiary for disbursements were flexible and disbursements could be curtailed if these assets were impaired. PW Advisers recommended an investment policy that considered two separate accounts - one for strategic assets and another for investment assets. The disbursements from the strategic account would be based on the income production of the assets. The investment assets would be invested in a broad range of asset classes with exposure to international equities, small capitalization stocks and value stocks. The fixed income portion of the investment account would be kept relatively short term.
Results: PW Advisers implemented the investment policy and is in the early stages of monitoring the fund performance as well as any changes to the needs of the trust. PW Advisers monitors the account on a daily basis receiving daily electronic statements from the custodian. The trustees receive quarterly reports on account balances and performance analysis and have access to current information on an as needed basis.
