Capital Maintenance Index (CMI)
A CMI is a method we adopted in discussion with one of the United Kingdom's largest Foundation, and have used it successfully with current Foundation clients. Providing clear and salient points, making Foundation progress easy to monitor and understand.
A dynamicn Investment Policy Statement (IPS)is imperative to properly align the Foundation's mission, goals and spending priorities with its investment objectives to maximize both investment capital and spending.
A custom Capital Maintenance Index (CMI) would be created using the Foundation's target return and bands with upper and lower limits so that the Investment Committee is able to form long-term decisions to meet investment spending objectives.
Target returns start with the Foundation's operating and granting needs, including inflation - this becomes your base return line. The base return, with associated bands, would be the basis for investment decisions going forward allowing for more than the traditional stock/bond/cash allocation and should be reflected in the Investment Policy Statement.
The chart above gives an idea of how the long-term direction is upward sloping but remains within bands.
A more dynamic report would be fashioned using your target return and bands with upper and lower limits so that the Investment Committee is able to form long-term judgements about investment and granting decisions. By setting a target return with an associated range for volatility, the Board may feel more confident and better able to tolerate shorter term swings as within range, leaving the door open for a greater long-term total return.
A surplus/deficit accounting method could be implemented where growth in the portfolio is above or below a base granting budget in each year. This would be tracked on a rolling basis with a 3-year time frame. Where a deficit is persistent, a review of both spending and investment should ensue. Conversely where there are persistent surpluses, granting may be increased.
Again, decision making is put into a longer time frame to allow the Investment Committee a view which provides flexibility and transparency in both the investment and granting process.
To summarise, our unique and dynamic reporting allows for an easily understood view of the Foundations timeline, providing the Board with flexibility and transparency in both the investment and grants.
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Private Foundations Client