Investing For Today and Tomorrow….

Josh Mandel, the president of a 150 family congregation in a resort community called me with a challenge regarding his synagogue’s $500,000 endowment fund. During the early 1980s, wealthy congregants – Lennie and Rose Cohen – who would winter each year in this community established this endowment fund for the general use of the congregation. There were a few of stipulations: the funds were to be housed at a particular local bank where one of the bank officers served as the executor of this endowment fund. And the $500,000 could only be invested in Certificate of Deposits (“CDs”). And all of the interest that had accumulated each year was available for use by the synagogue for purposes that the board saw fit.

Not bad!!

Back in the 1980s, this was actually a very good deal. The annual yield of 1 year CDs in 1983 was 9.95%. So on a $500,000 endowment, approximately $47,500 was available to the synagogue’s budget. Maybe the synagogue had 100 families at that time and its total expense budget was just over $100,000.

A really good deal!!

Fast forward to 2015. Google the best CD rates today and you will find that they are maybe 1.20%. So the annual yield on this $500,000 endowment is now just $6,000. And in 30 years time, the synagogue’s expense budget has grown to $200,000.

Lennie and Rose passed away 10 years ago. Past presidents and synagogue boards have chosen to just leave this endowment fund alone. They were concerned about raising the ire of the bank official who remains the executor of this endowment. And the written agreement establishing this fund is quite clear as to how the funds are to be invested and utilized.

I am sure there are other synagogues with similar stories. Josh, the synagogue president who called me, was raising an issue that should have been dealt with many years ago when CD rates plummeted. While the boards of not-for-profit organizations – including houses of worship – are, in theory, supposed to follow prudent investor rules as part of their fiduciary responsibilities, the easier road for such long established endowment funds – in this case, the Cohen Endowment – is simply to leave it alone.

I have written about UPMIFA – The Uniform Prudent Management of Institutional Funds Act – before. Synagogue board members are ultimately responsible for the financial management of all synagogue funds. Investment is a part of this responsibility.

Investing all of the synagogue’s endowment in hedge funds involves great risk and would not be considered a prudent investment. At the same time, having $500,000 invested in CDs isn’t the wisest investment either for those overseeing a synagogue’s financial future.

Now the Cohens did not give the money outright to the synagogue. Though my reading of the original documents establishing this endowment fund indicated to me that this is a fund of the synagogue. I suggested to Josh to consult with a local lawyer familiar with not-for- profit governance as well as UPMIFA in his state for further guidance.

I also suggested to Josh to approach the living relatives of the Cohens–or even just the bank officials if there are no living relatives – to explain to them the situation regarding the most generous endowment Lennie and Rose had established to benefit the synagogue many years ago. The investment landscape has changed dramatically in 30 years. In order for the synagogue board to be “prudent” in how synagogue funds are invested, and for the synagogue to benefit in the way that the Cohens had intended, investing such funds according to synagogue investment guidelines is necessary.

Does your synagogue have investment guidelines?

How should synagogue funds be invested? I have referred in the past to these guidelines from my synagogue, Temple Ner Tamid. For synagogues with under $1 million in funds to invest, it is a pretty good model to follow.   As your synagogue’s endowment fund grow, it would also be wise to seek guidance from investment professionals.

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