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FAQ Investments |
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What is the DSUMF Investment Service?
The Desert Southwest United Methodist Foundation’s (DSUMF’s) Investment Service is a financial service available to all agencies, boards, churches, and church foundations of the Desert Southwest Conference (DSC) of the United Methodist Church (UMC). The Service provides professional management of long term funds at a moderate risk with a favorable rate of return in a portfolio that is screened according to the Social Principles of the UMC.
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What
is the Foundation’s Investment Strategy?
The DSUMF’s investment strategy is a risk managed approach consistent with moderate to long term growth. Equities are divided into large, mid, and small cap with growth and value objectives, domestic and international. Periodically, we evaluate the model itself and rebalance our portfolio to insure that we are maximizing returns within acceptable risk tolerances. The purpose of this spread is to provide diversification so we can achieve favorable returns at moderate risk.
While managing the portfolio’s risk, the DSUMF shall also focus on the Long Term Growth and achieving a Total Return consistent with a socially beneficial result in accord with the Social Principles of the United Methodist Church. Long-term appreciation on an investment basis rather than short-term gains on a speculative basis shall be pursued. More specifically, The Goals of the DSUMF’s Investment Strategy are to:
A. Provide long term growth in relation to market inflation and deflation over the long-term (3+ years) and,
B. Maintain the buying power of the assets under management in relation to market inflation and deflation over the long-term (3+ years).
Authorization for both the existence of, and the services offered by the DSUMF is derived from the purposes of a Conference Foundation as detailed in ¶ 2513 of the Book of Discipline. The purposes are:
A: Receive, collect, hold and administer in trust, donations, bequests, and other planned giving for any UMC church or program of the DSC.
B. Promote planned giving (e.g., Charitable Gift Annuities, Trusts, etc)
C. Furnish counsel and guidance to churches on permanent endowments.
D. Other responsibilities as determined by the Desert Southwest Conference.ratio. - Who
Advises the Foundation on its Investment
Portfolio?
Wachovia Securities, LLC, now Wells Fargo Advisors was hired in October of 1999 to be the Foundation’s Broker of Record, to carry out certain due diligence activities, to provide research and advice, and to serve as the Foundation’s custodian. Additional portfolio oversight is provided by the Foundation’s Executive Director, Controller, Investment Committee, and the Board of Directors.
Investment Committee members are either members of DSUMF’s Board of Directors who choose to be on the Investment Committee because of interest and/or expertise, or representatives of depositing organizations. Depositors are encouraged to provide representation to our Investment Committee. The Committee meets every month either via toll-free teleconference or face-to-face to review the changes in the portfolio, oversee the investments and determine if the portfolio needs to be re-balanced to maintain the 60/20/20 ratio. - Who Manages the
Foundation/s Investment Assets?
Through Wells Fargo Advisors, the Foundation uses the services of thirteen different professional asset managers. Each asset manager specializes in a specific market class, or investment style. Each asset manager invests a specific percentage of the total portfolio as determined by the Asset Allocation Model and as detailed in the Foundation’s Investment Policy Statement (IPS). Asset managers constantly monitor the swings of the market and the effects of their trading activities on the total rate of return generated. When deemed appropriate, asset managers buy and sell securities within the parameters set forth by the DSUMF’s IPS. Each of the asset managers met stringent standards established by the research and due diligence branches of Wells Fargo Advisors, and was hired by the DSUMF based on several factors:
A. Ability to adhere to purchase only positions that adhere to the Social Principles of the UMC,
B. Above average, long-term performance relative to their respective peer groups, and appropriate indices as evaluated by industry statistics such as “standard deviation” (a measurement of risk), “beta,” (another measurement of risk), “alpha” (a measurement of a manager’s skill independent of market fluctuation), and “Sharpe Ratios” (a measurement of a manager’s risk-adjusted return vs. an appropriate index).
C. The Foundation’s moderate risk tolerance, and
D. The Asset Manager’s adherences to their own published “Buy and Sell” disciplines.
Through Wells Fargo Advisors, the Foundation uses the services of thirteen different professional asset managers. Each asset manager specializes in a specific market class, or investment style. Each asset manager invests a specific percentage of the total portfolio as determined by the Asset Allocation Model and as detailed in the Foundation’s Investment Policy Statement (IPS). Asset managers constantly monitor the swings of the market and the effects of their trading activities on the total rate of return generated. When deemed appropriate, asset managers buy and sell securities within the parameters set forth by the DSUMF’s IPS. Each of the asset managers met stringent standards established by the research and due diligence branches of Wells Fargo Advisors, and was hired by the DSUMF based on several factors:
A. Ability to adhere to purchase only positions that adhere to the Social Principles of the UMC,
B. Above average, long-term performance relative to their respective peer groups, and appropriate indices as evaluated by industry statistics such as “standard deviation” (a measurement of risk), “beta,” (another measurement of risk), “alpha” (a measurement of a manager’s skill independent of market fluctuation), and “Sharpe Ratios” (a measurement of a manager’s risk-adjusted return vs. an appropriate index).
C. The Foundation’s moderate risk tolerance, and
D. The Asset Manager’s adherences to their own published “Buy and Sell” disciplines. - What
is the Legal Framework for Managing the Portfolio?
There are laws associated with investing a non-profit organization’s money. The DSUMF understands these laws and is in complete compliance with all of them. The DSUMF takes its fiduciary responsibilities very seriously. Our investment policy statements and quidelines have been developed to comply with the “Prudent Man Rule,” as well as all 27 investment practices required by three different Acts of Congress. The most recent of these acts, the Uniform Management of Institutional Funds Act of 1972 has been revised. The revised Act was enacted by the State of Arizona in February of 2008. The revised law is called the Uniform Prudent Management of Institutional Funds Act, or UPMIFA. DSUMF complies with all requirements of this newly enacted law.
In addition to identifying factors that a non-profit organization must consider in making management and investment decisions, UPMIFA requires the organization and those who manage and invest its funds to:
A. Give primary consideration to donor intent as expressed in a gift instrument,
B. Act in good faith, with the care that an ordinarily prudent person would exercise,
C. Incur only reasonable costs in investing and managing charitable funds,
D. Make a reasonable effort to verify relevant facts,
E. Make decisions about each asset in the context of the portfolio of investments, as part of an overall investment strategy,
F. Diversify investments unless due to special circumstances, the purposes of the fund are better served without diversification,
G. Dispose of unsuitable assets, and
H. In general, develop an investment strategy appropriate for the fund and the non-profit organization’s purpose as stated in its articles of incorporation.
Members, or committees of churches who make direct investment decisions that are not in compliance with all 27 investment practices required by law and the most recently enacted UPMIFA are in violation of law and may be held personally liable for losses experienced by their investment decisions. They are therefore open to litigation that may be brought by any “disgruntled” individual or group of the church that feels harmed by those losses in any way. Members and committees can avoid personal liability only if they are in compliance with both UPMIFA provisions and all 27 prudent investment practices as required by law. - How
Do You Open an Account with the DSUMF?
When your church or agency opens an investment account with the Foundation, the Foundation’s Controller will work with you to establish the parameters of your account and identify any/all sub-accounts you may already be tracking. (Some of our depositors have as many as six different sub-accounts with different income allocation rules for each account.) Your deposit is agglomerated with all other deposits in the portfolio.
Our Controller will monitor all transactions both within your account and the entire portfolio. A monthly statement including the totals in your account along with totals for each of your sub-accounts is produced and e-mailed to you, on or about the 10th day after the close of a month. The statements provide a line-item accounting including audit adjustments, contributions, disbursements, the percentage of the portfolio that is owned by your investment, interest and dividends allocated, realized gains, (losses) allocated, unrealized gains (losses) allocated, balance before fees, fees allocated, and balance after fees allocated.
A monthly statement cover memo providing monthly and year-to-date gross and net rate of return comparisons to several major indices is also produced and posted on our web site at www.dsumf.org/investments.
Any depositor may request quarterly, semi-annual, or annual distributions of the interest and dividends and/or realized gains from their account. The foundation maintains no ownership or distribution control over the funds invested. There are no additional fees charged for distributions.
By DSC rule passed at Annual Conference in 2005, all United Methodist entities must secure an annual audit on their funds. This means that every agency, board, church, and church foundation must have an annual audit. All funds under DSUMF’s management are included in its independent, annual audit, which is performed by an auditing firm that specializes in audits for non-profit organizations. We pay for our annual audit with income derived from management fees. This means that all funds placed with us by agencies, boards, churches, and church foundations are audited annually by an independent auditor. At no extra expense beyond our annual management fee, United Methodist entities using our Investment Service are automatically in compliance with the DSC Audit Rule. There are no additional fees charged for the annual audit. - Are
there any Restrictions on Deposits?
The The minimum deposit required to open an account is $5,000. Since all funds are placed “on the market” they are therefore “at risk.” The funds placed with us should be long-term funds, meaning they are funds that are not absolutely necessary for the day-to-day operational expenses of your church or agency. All deposits made, whether initial or additional should be in the form of a check made payable to the Desert Southwest United Methodist Foundation or “DSUMF,” or deposits may be made through electronic transfers from one brokerage firm to ours using the proper Direct Transfer Corporation, and Account numbers. All depositors may add any amount to their account at any time. There are no additional fees charged for deposit transactions.
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Are there any Restrictions on Withdrawals?
The Foundation maintains no ownership control over the funds under management. Accordingly, an investor can withdraw any or all of their funds at any time without penalty. Withdrawal requests shall be made via e-mail, fax, or U.S.P.S. If a depositor requests funds that exceed an amount the Foundation normally holds in a “cash account,” then asset managers are ordered to sell positions on a pro-rata basis to generate the cash needed for the withdrawal requested. This process takes 3 to 5 business days depending on the amount of the withdrawal.
All distribution requests will be handled in the shortest period of time possible, but in an attempt to facilitate a regular flow of work at the DSUMF, please be advised that the DSUMF makes checks on the 15th and the 30th of each month. Please provide withdrawal notice by the 10th or the 20th of each month. If your request is of an emergency nature, then DSUMF has actually hand-delivered checks to depositors on the same day of the request. There are no additional fees charged for withdrawal transactions.
Your request to close an account must be made on your organization’s letterhead, dated, and signed by those parties authorized by the appropriate entity to conduct such transactions on behalf of the depositor. The time between distribution requests to your actual receipt of funds involves a series of processing steps that include both the brokerage firm and our Accounting Department. All processing steps are designed to maintain sound internal accounting controls. Account closings will be conducted quickly, and professionally. There are no additional fees charged for closing an account. - Can
a Depositor have a Customized Asset Allocation?
The For larger depositors, DSUMF offers a Custom Choice Investment Option. For depositors with $500,000 or more to invest, the DSUMF permits the depositor to choose their own Asset Allocation Model. Allocation choices range from 100% stocks and 0% bonds to 100% bonds and 0% stocks. Special fees are associated with this option and there are some restrictions as to when transfers or withdrawals can occur with accounts in this Custom Choice Product.
For example, before a transfer or withdrawal can be made free of charge, the account must be under management for a full calendar quarter after the date of your deposit. Withdrawals or transfers made before the end of a calendar quarter will cause a transaction fee of 5 basis points against your account (0.0005 x account balance). In addition, if your end-of month balance drops below the minimum deposit required for this investment option ($500,000) because of withdrawals and your account is not brought up to the minimum balance required before the following month’s end, then DSUMF will: 1) assess a 5 basis point transaction fee and transfer your account into the 60/20/20 portfolio, at which point, the standard, published management fee will apply. -
How is the Portfolio Evaluated?
The Foundation’s Investment Committee performs a comprehensive, quarterly portfolio analysis. The analysis evaluates the portfolio’s rate of return in comparison to a composite index which serves as a benchmark. Beyond the simple rate of return analysis, the Committee also evaluates the portfolio’s performance in relation to risk and its benchmark using statistical tools including “standard deviation,” “Alpha,” “Beta,” and “Sharpe Ratios,” because in the final analysis, the DSUMF’s Investment Service is all about managing risk. We can never predict what the markets will do, but we can and do monitor the level of risk we are willing to take on behalf of our depositors. Our asset managers, or “Prudent Experts” do the investing within parameters established by the Foundation’s IPS; we manage the amount of risk we permit our managers to take with your funds.
In addition to analyzing overall portfolio risk, each asset manager’s performance is measured using the same statistical tools including “standard deviation,” “Alpha,” “Beta,” and “Sharpe Ratios” in relation to their relevant indices. We also use a proprietary formula called our Weighted Percentile Ranking, which is yet another tool used to evaluate an asset manager’s performance relative to their peers who are investing in similar style-specific markets. If an asset manager is not performing up to our standards as detailed in our IPS, then there is a process to terminate the manager’s services and to hire the services of a new asset manager in their place. Since the 2nd Quarter of 2000, ten asset managers have been replaced for poor performance. - What
are the Fees for the Investment Service?
There is a Management Fee for service. The fee is taken monthly on the account’s end-of-month balance by charging that balance 1/12th of the annual fee. The fees are automatically deducted from your account and placed into the DSUMF’s accounts. From this management fee income, the Foundation, in turn, pays for all costs associated with managing your funds, including: 1) asset managers’ fees, 2) brokerage fees, 3) monthly accounting, 4) annual, independent audits, and 5) all transaction activities such as deposits, withdrawals, distributions, and gifted securities transfers. There are no hidden costs. The DSUMF’s investment management fee is an ALL-INCLUSIVE FEE.
Unless a depositor chooses the “Custom Choice Option,” or the depositor opens an account with more than $2,000,000, the annual, all-inclusive fee is 1.85%. For Custom Choice Option fees, please contact the DSUMF with your desired Asset Allocation Model, and the Foundation will provide a specific quote based on your needs.
In all the years the DSUMF has been providing Investment Services, it has never increased its fee. Click here to view "Custom Choice Option" Fees. - How is the Foundation's Portfolio Constructed?
- What is the Portfolio's Asset Allocation Model?
- How has the Foundation Performed over Time?
- What is the Portfolio's Summary of the DSUMF?
- What is the Investment Contract?