July 09, 2008
A Philanthropist Offers His Strategy for Charities' Investments
By Vince Stehle
(From the March 10, 1992 issue of The Chronicle of Philanthropy.)
In a career that has spanned 52 years, John Marks Templeton has become one of the most respected money managers in the world. His mutual fund shave long been popular, especially among individual investors.
Many of the non-profit groups Mr. Templeton has served have also benefited from his financial wisdom. For example, he has served on the investment committees of the boards of Princeton Theological Seminary and the foreign mission board of the Presbyterian Church.
Mr. Templeton says that investment practices among nonprofit groups have improved since he began volunteering, but they still lag behind the performance of commercial money managers. “They are better taken care of than they were 50 years ago, and they are better taken care of than they are in most other nations,” he says. “But they are not so well taken care of as they are in mutual funds.”
‘Excess Conservatism’
“One major factor is excess conservatism,” says Mr. Templeton. “People who are serving as trustees take very seriously their trustee duties, and so they tend to be too conservative.”
“It’s partly the nature of the structure of nonprofit boards,” he says. “There’s no one who will reward the trustee for exceeding a mutual fund’s performance. But they are likely to criticize him if he bought something that went down. And if he bought a share in a company that went bankrupt he is likely to be criticized, and he may even be sued.”
He adds: “Trustees need to delegate the responsibility. If the responsibility is with the trustee, he’s going to be conservative. But if he can delegate the responsibility to a well-known mutual fund, then he’s done his duty.”
While some foundations are starting to invest abroad, most nonprofit groups have been slow to enter international financial markets, observes Mr. Templeton. Consequently, charities have missed many opportunities to make better investments overseas, he says.
“Those organizations that have been willing to invest world-wide have generally had a higher total performance than those who limited themselves to America,” says Mr. Templeton.
Mr. Templeton says nonprofit financial officers have to be careful about overseas investments, however. “You can make mistakes so easily by not understanding how it’s done in the other countries,” he says. “The differences in accounting, taxes, and national attitudes can lead you astray greatly if you don’t understand them. You have to do a huge amount of background study before you feel you know what you’re doing.”
Commenting is closed for this article.
Previous: Opinion: What Obama's Campaign Views Say About Philanthropy
Next: Lawmakers Discuss Changes to Rules Governing Some Gifts of Art