The Trustee Governance Guide : The Five Imperatives of 21st Century Investing

More than 80% of the financial assets in the United States fall under the purview of a trustee. That's a big responsibility for an estimated 1% (around 1.5 million people) of the U.S. working population charged with overseeing investments for millions and millions of beneficiaries, public sector, and non-profit organizations. In a world proliferated by investment products, increasingly dominated by indexes, faced—particularly in the pension world—with increasing liabilities, more regulation, and a growing number of social and sustainability objectives, what's a trustee to do? __The Trustee Governance Guide__ is here to help guide today’s board trustee through the brave new world of 21st century investing. The book focuses on the critical aspects of the Five Imperatives: Governance, Knowledge, Diversification, Discipline, and Impact. Based on more than a decade of research, practice, and discussions with many key decision makers and influencers across the industry, this book addresses the many topics related to better governance, greater mission-driven financial performance, and impact. The questions the book addresses include: · What is good governance, how do we know it when we see it, and why does it matter? · How much knowledge is necessary to be a competent board member?· How big should my endowment be? · What are the key elements of a diversified portfolio? · How much does cost matter? · What's the difference between socially responsible and ESG investing? · Can I focus on sustainability and still be a good fiduciary? This book provides a way for boards to improve and benchmark their own governance performance alongside their peers, and uniquely covers related investment topics in each chapter. Dedication 5 Foreword 6 Preface 8 Contents 11 List of Figures 13 List of Tables 15 1: Introduction 16 How to Use This Book 19 Part I: The First Imperative: Be Well-Governed 20 2: Crisis 21 3: Fiduciary Duty 26 4: Good Governance 33 Components of Good Governance 35 Putting Knowledge into Practice 40 Other Key Areas 41 Practitioner Focus: Board Self-Assessment 42 Part II: The Second Imperative: Be Knowledgeable and Beware of Common Errors 44 5: Human Error and Behavioral Finance 45 Behavioral Finance 49 Practitioner Focus: How Much Endowment Is Enough? 54 The Role of Endowment in Maintaining Financial Equilibrium 56 Payout Policies 57 Managing the Endowment-Support Ratio 59 Optimizing the Endowment-Support Ratio 61 6: Knowledge Not Just for Knowledge’s Sake 63 7: Origins of Financial Illiteracy 69 Practitioner Focus: Investment 101 and Foundation Board Basics 74 Investment 101 74 Foundation Board Basics 75 Foundation Tax Rules 75 Donor Intent 76 Building a Board 76 Self-Dealing 77 Compensation 77 Grant Making 77 Assessment of Impact 78 Part III: The Third Imperative: Be Diversified 79 8: 30,000 Products 80 Some History 81 More Recently 83 Practitioner Focus: Cryptocurrencies 84 9: Theory Time 90 Practitioner Focus: Return Targeting 93 10: Over-Diversification 96 Practitioner Focus: Why Overcomplicate Things? 100 Part IV: The Fourth Imperative: Be Disciplined and Control Costs 104 11: The Active Versus Passive Debate 105 12: Active Versus Passive: The Evidence 108 13: Cost Savings and What Really Matters 113 Cost Control 114 Practitioner Focus: Fee and Expense Reports: What to Ask Your Consultant for on an Annual Basis 117 Part V: The Fifth Imperative: Be Impactful 119 14: Farewell to Uncle Milt 120 Practitioner Section: Doesn’t ESG Investing Pose a Conflict with Fiduciary Duty? 126 15: ESG Challenges 128 Practitioner Focus: What Exactly Is the Difference Between SRI and ESG? 131 Characteristics of SRI 132 Characteristics of ESG 133 16: OK, We’ve Bought In...Now What? 134 Industry Resources 135 Standards Organizations 135 SASB: Sustainability Accounting Standards Board 135 UN PRI: United Nations Principles of Responsible Investing 135 The Six Principles 136 UN SDGs: United Nations Sustainable Development Goals 136 United Nations Global Compact 138 The Ten Principles 138 US SIF: The Forum for Sustainable and Responsible Investment 139 Data Providers 139 Practitioner Focus: Writing an ESG Policy into Your IPS 140 Index 142 More than 80% of the financial assets in the United States fall under the purview of a trustee. That's a big responsibility for an estimated 1% (around 1.5 million people) of the U.S. working population charged with overseeing investments for millions and millions of beneficiaries, public sector, and non-profit organizations. In a world proliferated by investment products, increasingly dominated by indexes, facedâ#x80;#x94;particularly in the pension worldâ#x80;#x94;with increasing liabilities, more regulation, and a growing number of social and sustainability objectives, what's a trustee to do? The Trustee Governance Guide is here to help guide todayâ#x80;#x99;s board trustee through the brave new world of 21st century investing. The book focuses on the critical aspects of the Five Imperatives: Governance, Knowledge, Diversification, Discipline, and Impact. Based on more than a decade of research, practice, and discussions with many key decision makers and influencers across the industry, this book addresses the many topics related to better governance, greater mission-driven financial performance, and impact. The questions the book addresses include: · What is good governance, how do we know it when we see it, and why does it matter? · How much knowledge is necessary to be a competent board member? · How big should my endowment be? · What are the key elements of a diversified portfolio? · How much does cost matter? · What's the difference between socially responsible and ESG investing? · Can I focus on sustainability and still be a good fiduciary? This book provides a way for boards to improve and benchmark their own governance performance alongside their peers, and uniquely covers related investment topics in each chapter Front Matter ....Pages i-xvii Introduction (Christopher K. Merker, Sarah W. Peck)....Pages 1-4 Front Matter ....Pages 5-5 Crisis (Christopher K. Merker, Sarah W. Peck)....Pages 7-11 Fiduciary Duty (Christopher K. Merker, Sarah W. Peck)....Pages 13-19 Good Governance (Christopher K. Merker, Sarah W. Peck)....Pages 21-31 Front Matter ....Pages 33-33 Human Error and Behavioral Finance (Christopher K. Merker, Sarah W. Peck)....Pages 35-52 Knowledge Not Just for Knowledge’s Sake (Christopher K. Merker, Sarah W. Peck)....Pages 53-58 Origins of Financial Illiteracy (Christopher K. Merker, Sarah W. Peck)....Pages 59-68 Front Matter ....Pages 69-69 30,000 Products (Christopher K. Merker, Sarah W. Peck)....Pages 71-80 Theory Time (Christopher K. Merker, Sarah W. Peck)....Pages 81-86 Over-Diversification (Christopher K. Merker, Sarah W. Peck)....Pages 87-94 Front Matter ....Pages 95-95 The Active Versus Passive Debate (Christopher K. Merker, Sarah W. Peck)....Pages 97-99 Active Versus Passive: The Evidence (Christopher K. Merker, Sarah W. Peck)....Pages 101-105 Cost Savings and What Really Matters (Christopher K. Merker, Sarah W. Peck)....Pages 107-112 Front Matter ....Pages 113-113 Farewell to Uncle Milt (Christopher K. Merker, Sarah W. Peck)....Pages 115-122 ESG Challenges (Christopher K. Merker, Sarah W. Peck)....Pages 123-128 OK, We’ve Bought In...Now What? (Christopher K. Merker, Sarah W. Peck)....Pages 129-136 Back Matter ....Pages 137-140