Endowment
If we invest with the UM Foundation, do they keep track of our "interest" and our "principal?"
Answer: No, your treasurer or book keeper, or the Endowment Committee, must keep track of the following items each quarter, and must report them to the church members:
- Original gift amounts
- Income, which consists of
- Dividends paid on stocks
- Interest earned on bonds
- Capital gain on stocks sold
- Current Market Value of the endowment portfolio
- Each month you receive a statement from Comerica Bank, the UM Foundation's custodian, which tells you the following information:
- Opening Balance -- of your account
- Deposits -- you have made
- Withdrawals -- you have made
- Fees -- that have been paid for the management of your account
- Income earned -- through dividends and interest
- Capital Gain -- realized through stock sales
- Ending Balance -- of your account
On Investing
How does a church get started investing with the UM Foundation?
Answer: It's very easy and simple. You first call 1-800-334-0544, Ext. 235 and ask Jeanne Pitt, the Foundation's Coordinator, for an agreement letter.
When you get that letter of agreement you fill it out and have it signed by the Chairperson of the Board of Trustees.
Then you send that letter of agreement to the Foundation with your check for your first investment amount, and that's it. Make sure your check is made out to "Comerica Bank," and not to the Foundation itself.
What is the relationship between the UM Foundation and Comerica Bank and Munder Capital Management? It's confusing!
Answer:
- The UM Foundation is an entity within the Detroit Annual Conference that is charged by the Annual Conference with responsibility for helping the churches get planned gifts, helping them set up and market their endowment funds, and supervising investment pools for short-range and long-range funds, so the churches have a good alternative for investing their endowment funds.
- Comerica Bank is a trustee in a formal trust agreement between the bank and the UM Foundation. It is this instrument which makes it possible for the churches to have and participate in these investment pools in the first place. Only an institution like a bank or an investment company can invest the funds of others. The UM Foundation cannot do this by law. So Comerican Bank is our "custodian" or our "trustee."
Comerica Bank, as the custodian, is responsible for seeing to it that each church invested in the UM Foundation's investment pools receives a quarterly statement, so you know the investment results and have a record of your contributions and withdrawals each quarter.
- Munder Capital Management is the money manager for the Foundation's investment pools. They actually make the trades, buy the stocks and bonds, and decide how the Stock Fund and the Bond Fund are going to produce the results expected. Ina Fernandez is our money manager and has given us a fine fund performance from 1985 through the third quarter of 1997 of 13.3% average annual return.
Who oversees Comerica's work and that of the Money Manager?
Answer: The UM Foundation's Investment Committee. This committee has seven members, four of whom are currently portfolio managers for key institutional investors in the southeastern Michigan area. The other three are a pastor, the Conference treasurer and the Conference's former head of pensions and insurance. These men and women meet quarterly to review the money manager's performance and the custodian's work. They are responsible for a set of investment guidelines and the investment objectives defining the minimum performance of the money manager.
Church Funds
What's the difference between a"memorial gift" and a "bequest?"
Answer: A memorial gift is given by living persons in honor of a deceased person, usually at or around the time of the funeral or memorial service. A bequest, on the other hand, is a gift from the will of a deceased person which was arranged while that person was alive and is paid to the church upon the person's death.
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Do we have to use only the income from Endowment Earnings? In fact, do we have to have "income producing" investments at all?
Answer: Typically, endowment funds are thought of as having two components: the principal, which must remain untouched; and the income. It is prudent to use just the income for distribution to the church's use, while allowing the principal to grow through capital gain accumulation over the years.
- In today's economic environment, many endowment fund trustees are choosing to use a method other than "earned income" to determine how much they will distribute from their endowment funds for use each year.
- Take the average fund balance over the previous twelve quarters
- Multiply that average balance by a conservative figure such as 4.5% or 5%.
- Distribute this amount for use in the current year's budget or for current year projects.
- The advantage of this is that it permits investing in growth or aggressive growth styles where the amount of "earned income" may be small.
- Thus, an endowment fund does not necessarily have to invest in income producing investments in order to still have an annual distribution amount available.
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