Episcopal Diocese of Western New York

Overview of WNY Diocesan Investment Trust

General Information

Operational Detail of the DIT

 

General Information

Summary of the Diocesan Investment Trust

The Diocese of Western New York Diocesan Investment Trust (DIT) is an investment vehicle sponsored by the Trustees of the Diocese to provide a collective investment option for the diocese, its churches and agencies.

The Trustees have tasked its Investment Committee to provide prudent oversight of the DIT through careful selection and monitoring of investment managers, adoption of appropriate investment strategies, and presentation of clear and accurate reports and statements.

Participants can invest endowment funds, investment funds, or reserve funds in the DIT. Currently, the DIT offers four different investment strategies with stated objectives, risk profiles, and time horizons. Selecting the appropriate strategy for a fund is the responsibility of the governing board of the investing institution.

 

Definitions of Endowment/Investment/Reserve Funds

Endowment Funds

Endowment funds are long-term assets set aside with restrictions and invested in long-term investment strategies to provide a reliable source of income for your church/organization in perpetuity.  Only a prudent amount is spent each year.

Generally, there are two types of endowments: donor restricted or the only “true” endowment, and board-designated or “quasi” endowments.

A true endowment is established when a donor makes a gift directly to the Endowment Fund by name, or uses words such as “income only” or “to be held in perpetuity” in the gift instrument. The donor may further restrict the gift for a specific purpose such as music, capital needs, scholarship funds, etc.

Also, if the church promotes its Endowment Fund as a true or permanent endowment and receives gifts of any size for the Fund, those gifts are equally restricted. If a purpose is announced and donors give to an Endowment Fund for a named purpose, those gifts are restricted as to purpose as well. A state law called the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which has been passed in every state except Pennsylvania, defines the terms of prudent investment and prudent spending for true endowments for all non-profits, including churches. (See section on UPMIFA below.)

If the Vestry decides to place funds in the Endowment that could have been spent otherwise, such as an unrestricted bequest to the church (not the endowment fund of the church), money from the sale of property, or excess cash, those funds create a quasi endowment. This part of the Endowment Fund can be spent down by the Vestry within whatever rules have been enacted by the church. UPMIFA has no jurisdiction regarding quasi endowments.

If the vestry wants to spend more than the annual “prudent” spending rule from the quasi endowment, they can do it. However, we recommend that the church enact policies that force reflection and transparency such as requiring a two-thirds vote of the vestry at two consecutive meetings and informing the congregation of its intent to dip in the “corpus” of the quasi endowment before doing so.

It is important for the church to keep permanent records of gifts to the endowment fund in order to identify the nature of the gifts—whether they are restricted as to spending, restricted as to purpose, restricted by a donor, or restricted by the Vestry. These differences will determine how much of the endowment current and future Vestries can spend and for what purpose.

Investment Funds

These are funds set aside and invested by the church which have no constraints as to spending limits or purpose.

Reserve Fund

Reserve Funds are short-term assets set aside for a specific need, normally invested in liquid assets such as cash or fixed income assets, which may be spent down entirely as needed for the named purpose.

 

Importance of Endowment Funds

  • Endowments breathe life into a congregation. They make new ministries possible, spark creative outreach projects, ease the burden of long-term capital expenses, and secure the future of our churches.
  • Every church, no matter how larger or how small, deserves to have a well-structured endowment in place. It’s an axiom worth repeating – churches that don’t have a well-structured endowment in place tend not to receive legacy gifts.
  • From the donor’s perspective, a well-ordered endowment provides a trustworthy means of making a legacy gift. It’s hard to ask someone to make a legacy gift to your church if you can’t easily explain how the money will be managed, spent, used, and who is in charge of making those decisions.
  • Endowments are unique creations.  They reflect the generosity of prior generations. They challenge the skill of the current generation to manage those funds responsibly. And they invite the current congregation to develop and sustain a vision for the future.
  • If you don’t have an endowment fund, or don’t have a well-organized endowment you are committing two sins at once:
  1. You are depriving your church of precious resources for ministry.
  2. And you are depriving your parishioners of the opportunity to make a meaningful legacy gift to your church.

 

UPMIFA (Uniform Prudent Management of Institutional Funds Act)

UPMIFA is a state law passed in 49 of 50 state legislatures (all except PA) which provides guidance for investing and spending from endowment funds for all non-profit organizations, including churches. UPMIFA applies only to donor-restricted or “true” endowment funds; however, the principles embedded in the law are good standards for managing all endowment funds, including board-designated or “quasi” endowment funds.

The state of New York passed its version of UPMIFA on September 17, 2010. For more detail on the law please Google UPMIFA in New York.

UPMIFA Guidance for Investing

  • Diversify assets
  • Delegate investment responsibility to professionals
  • Avoid unnecessary costs
  • Consider general economic conditions
  • Follow the Investment Policy Statement (IPS) of the institution
  • Consider total return from income and appreciation

UPMIFA Guidance for Spending

  • Follow a total return spending policy
  • Work for the duration and preservation of the fund (“maintain the spending power of the endowment”)
  • Consider general economic conditions
  • Factor in the effect of inflation
  • Calculate expected total return from investment strategy
  • Reflect the purpose of the institution and the fund
  • Balance need for distribution with preservation of capital

Key Elements of UPMIFA

  • Rescinds historic dollar value
  • Removes “income only” restraint
  • Defines what “prudent” means
  • Provides means to modify endowment restrictions

For more information about the UPMIFA law and its impact on your endowment funds, please contact diocesan staff or staff members of the Episcopal Church Foundation in New York.

(Click here for summary of UPMIFA)

(Click here for copy of New York’s UPMIFA law)

(Click here for a guide to New York’s UPMIFA law from the Attorney General)

 

Operational Detail of the DIT

Investment Options

The DIT offers four investment options as before, but they will be different.

PreviousNew
Fund A – Growth & Income Fund (60/40)Growth & Income Fund (70/30)
Fund B – Intermediate Bond Income FundIncome Fund
Fund C – Money Market Savings Fund(discontinued)
Fund D – Growth Index FundGrowth Fund
Fund E – (none)Socially Responsible Fund (60/40)

(Click here for a summary of the options which provides detail on the strategies, objectives, and risks of the four funds.)

 

The new funds and their differences from prior options:

Fund A (Growth and Income Fund) will continue to be known as the Growth and Income Fund but will increase its exposure to equities, moving from a 60/40 equities/fixed income target to 70/30.

Fund B (Intermediate Bond Income Fund) will be known as the Income Fund and will hold a diversified blend of fixed income assets.

Fund C (Money Market Savings Fund) will be discontinued. The bank charges a fee to manage these funds. If a church wants to hold assets in cash, the most cost-effective way is to invest in CDs or a money market fund in a local bank.

Fund D (Growth Index Fund) will be known as the Growth Fund and will be invested in a diversified blend of equity assets classes, using both indexed and actively managed funds.

Fund E (Socially Responsible Fund) is a new fund that applies social screens to the funds its uses. Its long-term strategic target is 60/40 equities to fixed income and it uses all indexed funds. (Click here for overview of social screening at ECF/SSgA as well as details of the SRI Portfolio.)

 

Possible Investment Choices

Churches can invest 100% of the assets of a particular endowment/investment fund in any one of the four investment strategies.

Or, churches can choose to invest one fund in more than one strategy, for example, 50% in the Growth Fund and 50% in the Income Fund.

To manage this choice efficiently, the church would name the fund according to the strategy it chooses, breaking down its one Endowment Fund, for example, into two sub-funds: the Endowment Growth Fund and the Endowment Income Fund. When money is added or withdrawn the church would identify the relevant sub-fund to be credited or debited.

 

To Open a New Account

Please complete the New Account Form and return it to the Episcopal Church Foundation. (Click here for new account form.)

 

Adding or Withdrawing Money

To add money to an account, a church sends a check or wire directly to State Street Global Advisors noting on the form the church name, address, and account number to be credited. Additions can be made at any time.

To withdraw funds from an account, a church sends a request form to the Episcopal Church Foundation (ECF) in New York naming the dollar amount to be withdrawn and the fund to be debited. The form will require two signatures. ECF then requests the withdrawal from SSgA, copying the church and diocese via email. Cash will be sent by check to the church address on file within three to five days.

Draw requests can be made at any time, or, each year a church can establish an automatic draw of a fixed dollar amount each quarter.

(Click here for a copy of the Additions Form; here for a copy of the Withdrawal Form.)

 

Statements

Each quarter each church will receive by email a statement for each account it has invested in the DIT. The report will include information for the quarter and year-to-date in the following categories (click here for sample statement):

Beginning Market Value

Contributions

Withdrawals

Return:

            Dividends

            Interest

            Realized Gains/Losses

            Unrealized Gains/Losses

Fees

Ending Market Value

 

Performance Reports

A quarterly performance report for each of the four investment strategies will be posted on the diocesan website. It will show the performance of the portfolio as a whole compared to its long-term strategic target as well as detail on each of the underlying funds as compared to its relevant benchmark. (Click here for the latest quarterly performance reports.)

 

Spending Rule

Each year the Trustees will establish a recommended spending rule for Funds A, D and E based on the goal of preserving the spending power of the endowment in perpetuity after inflation and fees.

The policy is a total return policy based on a three-year rolling average fund value times a prudent draw percentage – normally in the range of 3% to 5%. The recommended draw would be appropriate for long-term investment strategies and complies with the spending rules of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) in New York.

UPMIFA rules apply to “true” or donor-established endowments; they do not apply to “quasi” endowments or vestry-designated funds.

Each year following the September 30 valuation, the Trustees will determine the recommended spending rule based on their assessment of market conditions, inflation, fees, and expected return on investments. All participants in Funds A, D, and E will receive a communication noting their funds’ three-year rolling average value times the suggested draw in advance of their annual budget process. They can then choose to receive the suggested draw in a lump sum, in quarterly payouts, or leave the money invested.

Participants can request an additional draw, or a periodic draw, as needed at any time. However, draws beyond the recommended spending rate will exceed the prudent draw rule embedded in UPMIFA which constrains spending from all “true” endowments. It will be up to the participant to know whether their funds are true or quasi endowments.

 

Investment Policy of the DIT

(Click here for the policy.)