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Questions to ask when setting up an endowment fund

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Madeleine Lee, Director of Athenaeum Ltd, and former deputy chief investment officer of the National University of Singapore (NUS) investment office, suggests the following questions to ask when establishing an endowment: 

1.     What is the investment philosophy of the institution?

     For example, will the endowment invest for the long term or will it be an active trader?

2.     What are the endowment’s objectives and risk tolerance? The answers will bring clarity to the investment mandate.

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3.     What is an efficient model for the endowment’s size? If it’s only $100 million, it will not make sense to hire a full investment team of 15 to 30 people. A consultant can be hired for, say $2 million to handle the entire process. Alternatively, smaller endowments can be invested into index funds.

4.     What is the endowment’s time horizon? It should outlast the term of the trustees/board.

5.     Is the investment income meant for spending or can it be reinvested for future use?

6.     How do the trustees think, who’s chairing the board of trustees and investment committee and how often are they replaced, and other governance issues. This is often the critical factor in determining the long-term trajectory of the fund.

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