Stanford to Purge $18 Billion Endowment of Coal Stock

By MICHAEL WINES
Posted on MAY 6, 2014
Article from http://www.nytimes.com/

Stanford University announced Tuesday that it would divest its $18.7 billion endowment of stock in coal-mining companies, becoming the first major university to lend support to a nationwide campaign to purge endowments and pension funds of fossil fuel investments.

The university said it acted in accordance with internal guidelines that allow its trustees to consider whether “corporate policies or practices create substantial social injury” when choosing investments. Coal’s status as a major source of carbon pollution linked to climate change persuaded the trustees to remove companies “whose principal business is coal” from their investment portfolio, the university said. 

Stanford’s associate vice president for communications, Lisa Lapin, said the decision covers about 100 companies worldwide that derive the majority of their revenue from coal extraction. Not all of those companies are in the university’s investment portfolio, whose structure is private, she said. Over all, the university’s coal holdings are a small fraction of its endowment.

“But a small percentage is still a substantial amount of money,” she added. 

The trustees’ decision carries more symbolic than financial weight, but it is a major victory for a rapidly growing student-led divestment movement that is now active at roughly 300 universities. 

At least 11 small universities have elected to remove fossil-fuel stocks from their endowments, but none approaches Stanford’s prestige or national influence.  Tuesday’s decision seems likely to increase the pressure on other major universities to follow suit.

Among other universities, Harvard has resisted student pressure for divestment, and one student was arrested on Thursday after pro-divestment activists blockaded the entrance to the school’s administrative offices.

Stanford’s trustees acted after Fossil Free Stanford, the campus branch of the movement, petitioned the board to re-evaluate the university’s holdings in energy companies, Ms. Lapin said.

Yari Greaney, 20, a Fossil Free Stanford organizer, said the group was “very proud of Stanford taking this leadership position.” Nationally, leaders of the divestment movement praised the school for its decision. 

As a global institution, Stanford “knows the havoc that climate change creates around our planet,” Bill McKibben, the president and co-founder of the environmental group 350.org, said in a statement. “Other forward-looking and internationally minded institutions will follow, I’m sure.”

Maura Cowley, the executive director of Energy Action Coalition, an assemblage of groups active on climate change issues, called the decision “a huge, huge victory.” 

“Their decision, coming from such a major university and from such a huge endowment, shows that the coal industry and other fossil fuel industries are quickly becoming relics of the past,” she said in an interview.

The trustees began studying divestment after Fossil Free Stanford petitioned them to re-evaluate their holdings of energy companies. An advisory panel that included students, faculty, staff and alumni spent roughly five months studying the issue before recommending that coal stocks be sold, Deborah DeCotis, the chairwoman of the board’s special committee on investment responsibility, said in an interview.

Among other deciding factors, Ms. DeCotis said, the panel noted that coal produces the most carbon per British thermal unit of any widely used fossil fuel, that practical alternatives to burning coal are available, and that the university was not dependent on coal or coal-derived products.

Other fossil fuels did not meet some of those criteria, but “this is not the ending point. It’s a process,” she said. “We’re a research institute, and as the technology develops to make other forms of alternative energy sources available, we will continue to review and make decisions about things we should not be invested in. Don’t interpret this as a pass on other things.”

Ms. Lapin said the school is already asking its investment advisers to review endowment holdings and sell stocks of coal companies. The order covers mutual funds with coal stocks as well as investments in individual companies, she said. 

MICHAEL WINES
Posted on MAY 6, 2014
Article from http://www.nytimes.com/

Where Big Money Endowments Are Investing Now

Kenneth Rapoza, Contributor
Posted on 4/30/2014 @ 10:24AM
http://www.forbes.com/sites/kenrapoza

Even though the U.S. economy slowed to a crawl in the first quarter, managers in charge of large endowment and foundation funds are in good spirits. Their favorite portfolio investments spots this year include emerging markets, and for hard assets — real estate. And they are more bullish about alternative and foreign investments than U.S. securities.

A first quarter survey of endowment and foundation managers conducted by industry consulting firm NEPC showed that 75% of respondents feel the economy is in better shape now than a year ago. The survey gives financial advisors a sense of investor sentiment in one of the most prized clientele segments for wealth management firms.

“Overall confidence is reflected in more than half of endowments and foundations polled saying the markets will show high single-digit returns and their strong conviction that equities, both U.S. and emerging markets, will be the top performers in the year ahead,” said Cathy Konicki, a partner at NEPC in Boston.  The survey was conducted this month, so respondents were already aware of a slowdown in China, the Russia-Ukraine crisis, and a less-stunning S&P.  U.S. equities in the S&P 500 rose around 1.3% in the first quarter, beating out emerging markets, the MSCI Europe and Japan.

According to NEPC survey of endowment and foundation investment trends, allocating to emerging markets and alternative investing now trump U.S. equities.

The U.S. economy expanded just 0.1% in the first quarter due to weaker than expected exports, the Commerce Department said on Wednesday. GDP growth, while still positive, is a stark contrast from the 2.6% gain in the fourth quarter.

Economists polled by Reuters expected growth to come in at 1.2%. Commerce blamed the slowdown on consumers hibernating this cold winter, and construction crews buying less material for outdoor projects as a result.

Big money endowments have  lived through the cycle and it doesn’t phase them one bit.

One of the more interesting takeaways from the survey is the interest in emerging market equity.  Emerging markets have been getting clobbered much of the year, thanks primarily to the continued round of lackluster economic news out of China, the preferred punching bag of financial pundits.

Year-to-date, the MSCI Emerging Markets Index is down 1.62%, while the MSCI China is down 9.39%.

Nevertheless, endowment and foundation money say emerging market equities will be one of the strongest performers of 2014.  It tied for first with domestic equities when asked for this year’s top performing asset class, each earning 22% of the vote.

The poor man’s emerging markets, the so-called frontier markets, will an underweight. However, 42% of survey respondents said they are considering an allocation to frontier specialty funds in the future.

Allan Conway, head of emerging market equities at London-based investment bank Schroders told FORBES recently that investors should follow their lead and start buying emerging markets now.  ”I’m expecting a big bounce later this year into next year,” he said.

While flow data does not suggest a shift in asset allocation, NEPC’s survey said there continues to be a migration of capital from traditional equity and fixed income strategies to non-traditional assets, including specialty funds and hedge funds, limited liability corporations, and  private equity.

More importantly, only 4% of respondents said they’ll be putting more money to work in the U.S. stock market through traditional means. But 81% said they were planning to increase exposure to multi-strategy funds, credit-linked funds and specialty hedge funds.

Then there’s private equity, which continues to be the favorite “alternative investment” for endowments and foundations.  Some 38% said they’ll be investing more in private equity this year, up from 32% last quarter.

Despite overall market confidence, 50% of respondents said that a slowdown in global growth was the single greatest risk to investment performance, down from 60% who said so in the fourth quarter.

For those who demand more dour news about the U.S. market at least, there is Marc Faber of the Gloom, Boom & Doom Report. He said on CNBC today that the Nasdaq is due for a “dramatic correction” this year, especially social media stocks like LinkedIn and Facebook.  On the other hand, he likes emerging markets.

“U.S. investors have to now choose what to buy. I believe it is too late now to buy the U.S. stock market,” he said.  ”I’m not ruling out a further bond rally…but in general I think that individual investors are excessively optimistic about their future returns.”

Kenneth Rapoza, Contributor
Posted on 4/30/2014 @ 10:24AM
http://www.forbes.com/sites/kenrapoza

Endowment mortgages: Legacy of a scandal

By Kevin Peachey Personal finance reporter, BBC News
4 January 2013 Last updated at 00:01 GMT

Nearly 25 years ago, Christine Taylor took the plunge and bought the first and only house she has ever owned.

Now, more than two decades on, she admits that paying off the resulting debt has been a constant worry.

That is because she was sold an endowment mortgage - a monthly savings plan, usually invested in shares and property, which was designed to pay off the home loan at the end of the term.

Like millions of other home buyers, she was also told that the policy might bring her a nice lump sum when the endowment matured after 25 years. In her case, the surplus was expected to be at least £10,000 in August 2013.

"I hadn't any fancy ideas about going on a spending spree," says the 55-year-old.

"I just thought I would be comfortable, with the mortgage paid off."

As it is, Mrs Taylor is among the hundreds of thousands of people who will receive final confirmation this year of a shortfall in the expected payout of the endowment.

"I've been struggling to get my mortgage down, but I'm glad we chipped away at it," she says.

"There will be people in a lot worse situation than I am."

'Optimistic' expectations

The rise and fall of endowment mortgages has been a feature of one of the most notorious mis-selling scandals in the last few decades.

Continue reading the main story   

“Start Quote

The industry grew as a result of tax breaks, and hit its peak towards the end of the 1980s when it became the fashionable home loan for those getting on the property ladder. The estimated peak was more than a million policies sold in a single year.

The extent of the subsequent decline is clear from the fact that only 27 sales of this product were completed in 2011-12, according to the City watchdog, the Financial Services Authority (FSA)

At the end of the 1980s, there was a boom in both the housing market and stock market, prompting those selling these products to make very high predictions of investment growth in endowment savings plans.

By the middle of the 1990s, it became obvious that these expectations were overblown.

"The original growth estimates on these policies were simply way too optimistic, while the funds just didn't perform as expected," says Phillip Bray, of independent financial advisers Investment Sense.

"In the coming years we'll see just how bad the endowment mortgages mis-selling scandal is."

In the late 1990s, regulators told insurance companies to write "traffic light" warning letters to policyholders to explain the level of shortfall that might occur. A "red letter" meant there was a high risk of the policy paying out less on maturity than the target amount.

Many thousands of people cut the link between the endowment and their mortgage, making alternative plans to pay off their home loan with other savings, investments, or a tax-free lump sum from their pension. Others have switched their mortgage to a repayment model.

Switching mortgages

But Steve Wilkie, managing director of Responsible Equity Release, says his business sees many older people who have not made any plans and may need to downsize where they live.

They are receiving letters asking them how they intend to pay off their mortgage, so suddenly the poor performance of their endowment has become a critical matter.

One issue to their advantage, he says, is that the value of their property has often risen, so there is sufficient equity in the home to pay off the loan, if they choose to sell.

This, clearly, is not the scenario many of these people would have wished for. They wanted the mortgage to be paid off and the property owned outright, ready for their family to inherit in due course.

Houses There are options for homeowners who have still to address a potential shortfall

There are other options for those facing a critical point in their finances, who face a shortfall, and who have not decoupled their endowment and their mortgage, according to Danny Cox, of financial advisers Hargreaves Lansdown.

He suggests people can switch to a repayment mortgage, or part endowment and part repayment - although they should check with their lender that there are no penalties or costs for doing so.

Others may consider cashing in their endowment and using the proceeds to pay down the mortgage, before paying the rest through a repayment method. Again there might be penalties, and there is a judgement to be made here over the future performance of the endowment.

Alternatively people could switch to saving in a more tax-efficient product such as an Individual Savings Account, rather than an endowment.

Compensation

While considering what to do next, many people who were sold endowment mortgages and face a shortfall might feel somebody else was to blame.

But they could face fresh disappointment because of a deadline on claiming for compensation for any apparent mis-selling.

Policyholders can make a claim to the Financial Ombudsman Service if they believe they were mis-sold the policy, and their endowment provider turns down their claim. Grounds for complaint may include:

•     Not receiving a full explanation that there could be a shortfall at the end of the mortgage  term
•     Being told that the endowment would definitely pay off the mortgage
•     The fees and charges were not explained
•     An adviser did not complete an assessment of finances and attitude to risk
•     Sales staff failing to ensure that income was available if the policy ran into retirement years
•     Receiving advice to cash in an endowment and being sold another

These rules led to complaints to the ombudsman about mortgage endowments totalling nearly 70,000 a year at their peak in the middle of the last decade.

The latest figures show that 2,109 complaints were made between April and September 2012.

However, about half of all the complaints received by the ombudsman are turned down because of a deadline. Claims must be made within three years of the householder realising that the policy was mis-sold.

That date is generally taken three years from the point at which policyholders received their red warning letter from their provider.

Time, it seems, has dealt these people another blow.

Kevin Peachey Personal finance reporter, BBC News
4 January 2013 Last updated at 00:01 GMT

China's red-hot property market shows no signs of slowing

THE RISE OF CHINA
By Charles Riley @CRrileyCNN May 20, 2013: 1:12 AM ET
Article from http://money.cnn.com/2013/05/20/news/economy/china-property/index.html

Property prices in China increased again in April.

HONG KONG (CNNMoney)

Property prices continued to rise last month in China, defying policymakers who have sought to cool the housing market while preserving robust economic growth.

Housing prices rose in 68 of 70 Chinese cities in April when compared to the previous month, according to the National Bureau of Statistics. Compared to last year, prices were higher in all but two of the 70 cities tracked by the government.

Prices in the capital, Beijing, registered one of the largest increases, rising 10.3% over the previous year. In the southern manufacturing hub of Shenzhen, prices jumped 11.3%.

On average, new home prices across the cities increased 4.3% over the previous year.

Fearing the development of a real estate bubble, China has sought to stem rising property prices in recent months. But policymakers have also been forced to consider the broader impact of such policies as China's economy shows signs of slower economic growth.

"This [data] suggests that polices aimed at cooling the property market have not yet tightened sufficiently," said Zhiwei Zhang, an economist at Nomura. "We believe this will add further pressure on the government to tighten monetary policy in the months ahead."

China's urban housing costs have grown for much of the last decade, sparking a cycle of government reaction. Earlier this year, the central government directed local governments to rein in housing prices by April 1.

Authorities in Shanghai told banks to stop issuing loans to individuals attempting the purchase of a third home.

Beijing announced that single residents will now be allowed to purchase only one home. Both cities said they would strictly enforce a 20% capital gains tax on income earned in property sales.

The announcements set off a fresh wave of buying to beat the restrictions, and some couples even hatched schemes to skirt ownership restrictions by obtaining a divorce.

Yet additional measures may be required if the market does not soon show signs of deceleration.

Citing rampant speculation and poor planning, some China analysts are worried about the development -- and possible deflation -- of a housing bubble. Chinese citizens have limited investment options, and real estate is a popular choice for those looking to expand their portfolio.

Yet other analysts insist that fears of a bubble are overstated. Hundreds of millions of Chinese are expected to move from rural areas to cities over the next decade, they say, and demand is likely to remain strong.  

Charles Riley @CRrileyCNN May 20, 2013: 1:12 AM ET
Article from http://money.cnn.com/2013/05/20/news/economy/china-property/index.html

Study Confirms College Endowment Drop

By TAMAR LEWIN
Published: February 1, 2013
Article from http://www.nytimes.com/

On average, college and university endowments’ investments lost 0.3 percent in the last fiscal year, a sharp drop from the average return of 19.2 percent in fiscal 2011, according to a study by the Commonfund Institute and the National Association of College and University Business Officers, known as Nacubo.

The returns were dragged down mostly by the dismal performance of international equities, whose returns declined by 11.9 percent, attributable in good part to the economic turmoil in Europe and the slowdown in China. Domestic stocks had an average return of 2 percent, and fixed-income assets 6.8 percent.

The study, based on data from 831 American colleges and universities with a total of more than $400 billion in endowment assets, showed more positive long-term results. Preliminary results were released in late October.

“Over the last 10 years, the average rate of return was 6.2 percent,” said John D. Walda, the president of Nacubo. “That’s a good number when you compare it with various indices.”

In the fiscal year that ended in June 2011, the average 10-year return was 5.6 percent.

The study, which includes large and small institutions, public and private, found that those with the largest endowments had the greatest returns last year. Among universities with endowments greater than $1 billion, the average return was 0.8 percent. Those with endowments of $25 million to $500 million had negative returns, and those with endowments under $25 million had a return of 0.3 percent.

Altogether, 71 institutions have endowments greater than $1 billion, and 145 have more than $500 million.

The colleges and universities in the study spent an average of 4.2 percent of their assets last year to support their operations, down from 4.6 percent the previous year. But while the spending rate had declined somewhat, the average dollars spent per institution grew by about 7 percent. Most colleges and universities have a policy of spending 4 percent to 5 percent of their average endowment value over the previous three years, so the sharp rises in endowment values in 2010 and 2011 increased the amount paid out last year.

The institutions with the largest endowments, which get a significant portion of their operating budgets from endowment spending, spent an average of 4.7 percent last year. The institutions with the smallest endowments spent slightly under 4 percent.

“The long-term goal of most endowments is to exist in perpetuity and grow with the rate of inflation,” said Verne O. Sedlacek, president of Commonfund.

To do that while paying out 4 percent to 5 percent a year, he said, would require annual returns of at least 8 percent, given that the higher education price index has been rising about 3.8 percent a year over the last decade. “Universities are still not back to where they need to be,” Mr. Sedlacek said.

This article has been revised to reflect the following correction:

Correction: February 6, 2013

Because of an editing error, an article on Friday about a study of university endowments misstated the change in their investment returns. On average, college and university endowments lost 0.3 percent in the fiscal year ending in June, a sharp drop from the average gain of 19.2 percent in the 2011 fiscal year; the returns on endowments did not decline by 0.3 percent.

TAMAR LEWIN

Published: February 1, 2013

Article from http://www.nytimes.com/

Community Endowment Fund awards $100,000 in local grants

Ukiah Daily Journal Staff
Updated:   05/15/2013 12:00:32 AM PDT
Article from http://www.ukiahdailyjournal.com/news/

Ukiah Daily Journal

One hundred thousand dollars in local grants were awarded at the March 5 meeting of the Community Foundation. These grants were made possible through the Community Foundation's "Community Endowment Fund."

"The Community Endowment has been built by contributions that vary from a check for twenty-five dollars to an estate gift valued at several hundred thousand dollars," says Board President Jim Mayfield. "By giving to the Community Endowment, our donors know their gifts will be used here in Mendocino County, doing good, for the long term."

Megan Barber Allende, the Community Foundation Director of Grants and Programs, notes that the Community Endowment Fund has been built by donors with various interests, and all of these are reflected in the grants. "We awarded grants for youth, to help the poor, for the arts, to preserve the natural beauty of this place, and for many other areas of interest. We do it all through the big umbrella of the Endowment Fund."

The grants funded through the Community Endowment Fund are reviewed by regional volunteers, as well as a Board Committee. Grants are made in all regions of the county, and fund grassroots as well as more established non-profit organizations.

Countywide

Cancer Resource Centers of Mendocino County­$4,800: To develop and implement program management modules aligned with CRCMC's Salesforce platform, convert CRCMC's website toa non-HTML platform, and train CRCMC staff to use and maintain both of these systems.

Mendocino County Public Broadcasting­$5,000: For a new digital, remote-controllable console at the KZYX studio in Philo, ensuring continuous radio service for all of Mendocino County.

Ukiah

Alex Rorabaugh Center­$2,000: To hire a community liaison/program developer for the "Open ARC Night" pilot program, opening the Alex Rorabaugh Center for use by neighborhood residents at no cost.

Ford Street Project, Inc.­$5,000: To implement NonProfit EASY to improve the website and develop communication and data management tools to integrate donor and volunteer databases, improve the Food Bank data collection process and enable workshop enrollment and on-line scheduling.

Mendocino County Youth Project­$5,000: To assist with rent and utilities for the 2bu Clothes Closet while MCYP integrates it into its program and funding structures, maintaining the current program while simultaneously expanding its services.

Redwood Valley Outdoor Education Project­$4,000: To develop a business plan, expand fundraising activities, and engage new donors--immediate and long term-- in order to sustain RVOEP's unique program and ensure that outdoor learning opportunities are available for generations to come.

School of Performing Arts and Cultural Education (SPACE)­$2,500: To purchase a new computer and two mini-servers to improve SPACE's administrative capacity.

TLC Child & Family Services­$1,500: To prepare the ground for an outdoor play area for neglected and abused children at TLC's short-term emergency shelter in Ukiah.

Ukiah Symphony Orchestra­$1,500: To purchase 42 music stands for use during Ukiah Symphony Orchestra rehearsals and concerts, enabling more flexibility for concerts and fundraising events and eliminating the organization's current dependence on Mendocino College.

For more information about the other 21 grants or how you can make a gift to the Community Endowment Fund, visit www.communityfound.org.

Anderson Valley

Anderson Valley Health Center­$4,000: To restore the Anderson Valley High School track to a multi-season fitness space useable to promote health and fitness among students and community members alike.

Anderson Valley Land Trust­$5,000: To conduct a series of educational workshops that will provide tools and strategies for farmers, ranchers, forestland owners, local resource organizations, and professionals to preserve working rural lands in Anderson Valley.

Laytonville/Leggett

Laytonville Unified School District­$5,000: To purchase supplies and additional instructional hours for the music teacher in order to expand, diversify and sustain the art and music program at Laytonville Elementary School.

North Coast

Community Center of Mendocino­$4,000: To outfit the dance studio with folding mats and exercise equipment in order to enhance the Community Center of Mendocino offerings of classes and activities for all ages, including Brain Gym, tumbling, Pilates, and step aerobics.

Gloriana Musical Theatre­$2,000: To reconstruct and redesign approximately 20 pages of the Gloriana Musical Theatre website with video clips and improved interfacing to support promotion of future productions, events, and educational programs.

Lighthouse Foursquare Church­$2,000: For a dishwasher and new countertop to enhance the meal program provided by Lighthouse Foursquare Church to poor and homeless coast residents.

Mendocino Film Festival­$4,000: To retain a graphic arts consultant to create templates for annual print publications, assemble templates into a user-friendly "cookbook", prepare volunteers to use these new tools, and aid MFF in sharing approach with other non-profits.

Mendocino Woodlands Camp Association­$3,000: For marketing materials and local outreach activities to elementary schools, home school programs, and colleges to encourage participation in Mendocino Woodlands environmental education program.

Pacific Textile Arts­$4,000: To assist with the installation of a translucent roof over a courtyard on the Pacific Textile Arts campus, providing a protected space for outside classes, a raised bed garden of dye plants and a rain water collection system.

Renewable Energy Development Institute­$4,000: To expand the existing Home Energy Link Program (HELP) to low income families on the Mendocino Coast, providing access to a wide variety of free energy and money saving programs.

Round Valley

KYBU: Round Valley Community Radio­$3,500: To purchase remote broadcasting equipment for KYBU Round Valley Community Radio and provide training for youth and adult community volunteers to broadcast live from local events and meetings.

Round Valley Indian Health Center/Family Resource Center­$1,000: To purchase computers to assist with the establishment of a Community Computer Center in the new Round Valley Family Resource Center.

South Coast

Acorn Independent Learning Center­$2,500: To deliver three 4-6 week sessions of garden-based education programs to approximately 60 children from local South Coast elementary schools, fostering an appreciation and understanding of our local environment and food systems.

GED Program of Point Arena­$1,000: To purchase computers to better prepare students for the upcoming online GED testing requirement.

Point Arena High School­$5,000: To enhance the newly built track with the purchase of 80 hurdles, 8 starting blocks, sand for long jump, and fencing for shot put allowing the PAHS track & field team to train for and host meets for their parents and the broader community to enjoy.

South Coast Seniors­$3,300: To purchase and install an ice maker which will be used to maintain the freshness of food served during senior congregate dining, fundraisers, and in the Meals-on-Wheels program, creating substantial organizational savings over the long-term.

Willits

Charter School Association of Willits­$3,000: To purchase a two-door commercial refrigerator for Willits Elementary Charter School, enhancing food safety at the site.

Nuestra Alianza de Willits­$4,000: To assist with office rent and utilities during the organization's transition from Mendocino College to self-sufficiency, enabling it to develop a business plan and the Board leadership skills necessary to cover these costs well into the future.

Willits Daily Bread­$3,400: To purchase a new commercial refrigerator in order to improve food safety and reduce energy costs.

Willits Community Theatre­$1,000: For the costs associated with initiating and recording a series of workshops designed to inspire interest in theater from community members traditionally outside the scope of committed theater "regulars", thereby expanding WCT's volunteer base.

Willits Kids Club­$4,000: For tree protection and staking for over 70 new trees in the Willits Kids Club Discovery Park and Playground, providing children and adults with a safe place to play, learn, and grow.

Ukiah Daily Journal Staff
Updated:   05/15/2013 12:00:32 AM PDT
Article from http://www.ukiahdailyjournal.com/news/

KAHLER: Good, bad and ugly of whole life insurance

by Rick Kahler
Article from http://rapidcityjournal.com/business/

It's impossible for a financial columnist to please all of the readers all of the time. My recent column criticizing the Be Your Own Banker scheme drew the ire of several fans of whole life insurance. Two of them in particular, whose responses were published in the Rapid City Journal, disparaged my integrity, my professional qualifications, and my math skills.

Part of the problem is that these readers interpreted my warning about BYOB, which I called "one step from being a scam," as an attack on whole life insurance in general. That was not the case.

Admittedly, I'm not a fan of whole life as an investment. The purpose of life insurance, in my view, is not to provide retirement income or cash value, but to replace income when someone dies. For most people, the best and cheapest way to do this is through term life insurance. Obviously, someone who sells insurance will have a different opinion.

The insurance agent who tried to show that my math didn't add up accused me of misrepresenting a Modified Endowment Contract (MEC). He wrote that no insurance professional using what he called the "banking concept" would ever sell an MEC. He's right about that.

An MEC is a classification under 1988 federal tax law that is intended to limit the use of life insurance policies as tax-advantaged investments. If the cumulative premium payments exceed certain amounts, the IRS defines a policy as an MEC. This means withdrawals from the cash value are taxed as ordinary income and subject to a penalty.

What the BYOB salespeople promote are "blended whole life" policies. These combine term and whole life in order to keep the policies from qualifying as MECs. The calculations presented in my article were actual numbers taken from a blended whole life policy sold by a BYOB promoter, so of course they didn't add up when viewed through the lens of an MEC.

Is a blended whole life policy ever a worthwhile option? Like any insurance products, there are certain situations where they make perfect sense when they are represented honestly and transparently.

However, anyone considering such a policy needs to know two things. First, insurance agents are compensated by commissions on the products they sell. They have no fiduciary responsibility to act in the best interests of their customers.

Second, whole life insurance pays some of the highest commissions of any financial product on the planet. The typical commission ranges from 50 percent to 70 percent of the first year's premium.

With commissions like this, it's easy to see how insurance agents might feel challenged by any criticism of whole life insurance. As a fee-only financial planner, if I discover that a particular type of whole life insurance isn't good for consumers, that's simply useful information to pass on to my clients. The same discovery for a commissioned insurance agent, however, is a potential threat to that agent's livelihood.

Even with these tempting commission rates, there are many legitimate life insurance professionals whose intent is to serve customers rather than exploit them. These honest agents do their best to sell products they believe will promote consumers' financial well-being. Comparing whole life insurance sold by reputable agents to the schemes pushed by BYOB sellers is like comparing apples and rotten apples.

It's too bad that more insurance professionals are not stepping up to protect their industry from the rotten applies engaged in this type of shady marketing. Numerous honest life insurance salespeople would agree that the BYOB spin is not only harmful to consumers, it is also hurting the life insurance industry as a whole.

Rick Kahler, CFP, is a fee-only financial planner and author. Find more information at www.KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com or 343-1400, ext. 111.

Rick Kahler
Article from http://rapidcityjournal.com/business/

How Cooper Union’s Endowment Failed in Its Mission

By Marcus Mabry and James B. Stewart

Common Sense: The Fight for Cooper Union: Cooper Union, once a premier institution of higher learning with free tuition, will begin charging students. The Times’s James B. Stewart and Marcus Mabry discuss how it mishandled its endowment.

By JAMES B. STEWART

Published: May 10, 2013

Article from http://www.nytimes.com/2013/05/11/business/how-cooper-unions-endowment-failed-in-its-mission.html?pagewanted=all&_r=0

Since Peter Cooper’s heirs gave the Cooper Union for the Advancement of Science and Art the land under the Chrysler Building in 1902, the school’s endowment has enabled it to offer students a high-quality, tuition-free education through two world wars, the Great Depression and multiple stock market crashes and financial crises.

So why does Cooper Union now find itself forced to charge tuition of an estimated $20,000 a year, abandoning what many consider its most important legacy?

This week, angry students were occupying the president’s office in protest. They might be even angrier to learn that some of their future tuition dollars could be going to support wealthy hedge fund managers who oversee some of the school’s $666.7 million endowment.

Cooper Union may be an extreme example, but it’s hardly the only college suffering from a combination of decades of bad decisions and recent treacherous markets. Its endowment was typical of the many endowments and pension funds that took the plunge into so-called alternative investments like hedge funds, which have lured investors with the promise of generous and steady returns in both good times and bad. And compared with many universities, Cooper Union did a good job managing its endowment through the recent financial crisis. As recently as 2009, the school maintains, it ranked first among all American universities for endowment performance.

Even so, hedge funds couldn’t solve the college’s dire financial problems, and many hedge funds have been far more successful at lining the pockets of their managers than beating market averages. (The typical hedge fund manager charges a fee of 2 percent of assets plus 20 percent of any gains.) In fiscal year 2009, which ended June 30, 2009, Cooper Union’s hedge funds and other managed assets lost 14 percent, and the returns since then have lagged the stock market’s recovery. Today, Cooper Union’s endowment is lower than it was at the end of fiscal year 2008, even as the Standard & Poor’s 500-stock index has hit new highs. From 2009 to 2012, a simple, low-fee mix of 60 percent stocks and 40 percent bonds far outperformed hedge fund indexes.

Weak hedge fund performance is hardly Cooper Union’s only financial problem. Today’s crisis has been brewing for decades if not longer, and comes after years of what looks like bad management decisions with little accountability or supervision by New York’s attorney general, who oversees nonprofit institutions. Over the decades, Cooper Union has sold off assets piecemeal, failed to diversify its endowment, taken on debt and built a lavish new building. After the 2000-1 stock market plunge, the managed endowment, excluding the Chrysler Building, lost half its value. The school never cultivated its potential donor base, leaving most graduates with the impression that it was wealthy and didn’t need alumni contributions.

In some ways, it’s surprising that the school’s trustees managed to stave off charging tuition as long as they did. “We’ve only been one step ahead of the bailiff for decades,” said John C. Michaelson, a trustee who runs an investment firm and has been chairman of the investment committee since 2012, as well as from 2005 to 2008. “We were pulling rabbits out of hats.”

The simplest rule of asset management, one familiar to even novice investors, is diversification. Yet Cooper Union’s endowment is highly unusual in that it’s concentrated in a single asset — the land under the Chrysler Building — which accounts for nearly 84 percent of its assets, according to its most recent financial statement.

By contrast, Emory University in Atlanta, which as recently as 2001 had 60 percent of its main endowment in Coca-Cola stock, has since sold all of it and diversified into other assets.

Having so much of the endowment in a single asset “is against everything I stand for,” Mr. Michaelson said. He and other trustees said they considered selling it in 2006, when the college was facing mounting financial deficits, but concluded that would be impractical. Cooper Union receives annual lease payments of $9 million from the owner of the Chrysler Building, Tishman Speyer Properties, and $18.2 million in so-called tax equivalency payments that would otherwise go to New York City. The right to the tax revenue couldn’t be transferred to a buyer.

But assuming a 5 percent return, a $27.2 million annual revenue stream would be generated by selling the Chrysler Building land for $544 million, which doesn’t seem so far-fetched a price. Tishman Speyer sold 666 Fifth Avenue, which hardly compares to the landmark Chrysler Building, for $1.8 billion in 2006, and bought the MetLife building in 2005 for $1.72 billion. And the Chrysler site might have been highly appealing to a sovereign wealth fund or other major real estate investor looking for a trophy asset. (A Cooper Union spokesman said the trustees needed to generate annual revenue of $55 million, which the lease is expected to produce beginning in 2018. The amount necessary to generate that revenue at a 5 percent return would be $1.1 billion.)

Still, it doesn’t seem the trustees made any serious attempt to even determine its market price, and the college seems to have had a nostalgic attachment to it as a part of its heritage. In 2006, Cooper Union defended the decision not to sell the land by describing it as “a gift from the children of Peter Cooper,” that is “the heart of the Cooper Union.”

Instead, Cooper Union renegotiated the lease with Tishman Speyer, which was not due to expire until 2047. The college negotiated an increase to $32.5 million in 2018, which rises every 10 years thereafter. But it still had to make it to 2018, five years into the future.

At the same time that Cooper Union decided not to try to sell the site, it borrowed $175 million, using the Chrysler site as collateral, to build a new engineering and art building and “to meet future operating deficits,” as the school acknowledged in court papers seeking permission for the loan. The term of the loan was 30 years, at an interest rate of 5.875 percent, which amounts to more than $10 million in interest payments a year. By today’s standards, 5.875 percent is exorbitant, but the college said it couldn’t refinance the loan at a lower rate.

Hardly anyone disputes Cooper Union’s need for new engineering facilities. Whether it needed that particular building, at such high cost — about $166 million — remains a matter of dispute. Trustees told me that the college’s development consultants told them that a signature building with a marquee architect — in this case, Thom Mayne of Morphosis Architects — would attract a large donor eager to have his or her name on a trophy building.

But no such donor materialized, and experts I consulted said Cooper Union had it backward — the first step is to attract the donor, who then is involved in choosing the architect and designing the building. “I’ve never heard of a case where you build the building first and hope a donor comes along,” said Kenneth E. Redd, director of research and policy analysis for the National Association of College and University Business Officers. Trustees I spoke to agreed that the assurances they got that donors would materialize proved to be wrong. “We were supposed to raise another $125 million,” a trustee told me. “We didn’t. Maybe we were over-optimistic, but we had these professional development people who told us someone would want to put their name on the building.”

Of the loan proceeds, $34 million was turned over to the school’s endowment. According to Mr. Michaelson, all of that was held in cash and used over the next few years to cover the school’s mounting operating deficits. “I never would have borrowed money to invest in the market,” Mr. Michaelson said. “It’s against everything I believe in; I don’t believe in leverage. Leverage is great on the upside. It destroys you on the downside. We couldn’t afford to lose money.”

But the endowment aside, the large loan did have the effect of adding a large amount of leverage to Cooper Union’s balance sheet at what turned out to be an especially bad moment. And the cash freed up other money for alternative assets at what turned out to be the top of the market. In 2006, the school had $19.4 million in hedge funds. In 2007, that had ballooned to $75.6 million, which amounted to more than 60 percent of the managed portfolio, excluding the Chrysler site and cash. By 2008, the hedge fund investments amounted to almost $103 million. That’s a very high concentration of the non-real estate assets in a single asset class.

Cooper Union’s heavy reliance on hedge funds “strikes me as irresponsible,” said Simon Lack, an investment adviser and author of “The Hedge Fund Mirage,” which questions many of the premises of hedge funds. “Of course, it was forced upon them by a long series of what look like bad decisions. But there’s no way that hedge funds could deliver the returns they wanted after their high fee structure.”

Mr. Michaelson said he anticipated there might be a market downturn, and that the hedge funds included so-called long-short funds and absolute return strategies intended to protect against declining markets. But by the end of fiscal year 2009, Cooper Union’s hedge funds amounted to just $18.8 million, in part because of market declines and in part through liquidation.

Mr. Michaelson said he was aiming for a 10 percent annual return, which may have been attainable in the early days of hedge funds, when they had much less capital to invest. Today, “such returns are simply unrealistic,” Mr. Lack said.

Hedge funds did help cushion the market decline in fiscal year 2009, when the S.& P. 500 dropped about 26 percent. But they have hurt the endowment’s performance since then. Mr. Michaelson said Cooper Union’s returns for the managed endowment, excluding the Chrysler asset and cash, were negative 14 percent in fiscal year 2009, 10 percent in 2010 and 17 percent in 2011. Cooper Union’s portfolio lost 5 percent in fiscal year 2012. That portion of the endowment fell to about $85.9 million at the end of fiscal year 2012, from about $169 million in 2008, and the total endowment dropped to $666.7 million from $710 million in 2008.

By comparison, a simple mix of 60 percent stocks, as measured by the S.& P. 500, and 40 percent bonds, using the Dow Jones corporate bond index, performed far better: down 11.7 percent in 2009, and up 14.5 percent in 2010, 20.8 percent in 2011 and 7.9 percent in 2012. Yet investors keep pouring money into hedge funds — a record $15.2 billion in this year’s first quarter. Hedge funds now have $122 billion under management, a new high, according to Hedgeweek, a trade publication.

Cooper Union’s costs, especially health care costs, kept mounting inexorably. In 2008, the college was $4.6 million short in cash. Last fiscal year, the cash-flow deficit was $13.2 million.

Aside from endowment income, universities have only limited options for increasing revenue: donations, tuition and, for research universities, government grants. Alumni contributions have long been a weak spot at Cooper Union. Thomas R. Driscoll, a trustee and member of the alumni council, said: “There was never any sense of giving back. Cooper never asked. We always thought Cooper didn’t need the money because it had the Chrysler Building. Forty years ago, I would have stressed to students that someone had to make it possible for you to come here for free.”

With few donations, that left Cooper Union only one option: charging tuition. On April 23, the college announced that it would cut the full-tuition scholarship in half beginning with the entering class in 2014, and would continue to offer full-tuition scholarships to students with demonstrated need. “Our priorities have been and will continue to be quality and access, so that we will remain a true meritocracy of outstanding students from all socio-economic backgrounds,” the college’s trustees said in a statement.

Mr. Michaelson conceded that the school could have continued to use the endowment to cover deficits and would have survived until 2018, when the higher payments from the Chrysler lease start. “But what kind of school would you have had by then?”

A version of this article appeared in print on May 11, 2013, on page B1 of the New York edition with the headline: How Errors In Investing Cost a College Its Legacy.

By JAMES B. STEWART
Published: May 10, 2013
Article from http://www.nytimes.com/2013/05/11/business/how-cooper-unions-endowment-failed-in-its-mission.html?pagewanted=all&_r=0

The Hottest Trend for Wealthy Do-Gooders

The Rockefeller Foundation's Judith Rodin explains impact investing. But she warns: "This is not the solution to less government funding."

By Sophie Quinton
Updated: May 7, 2013 | 12:24 p.m. 
May 7, 2013 | 10:10 a.m
From http://www.nationaljournal.com/

Can capitalism be the solution for easing pressing social problems? These days, the concept of "impact investing" is all the rage among high-powered do-gooders. It's an emerging field that allows investors to make money and make a difference at the same time. The Rockefeller Foundation has spent some $40 million funding the kind of network needed to make impact investing possible--from supporting social entrepreneurs to developing new metrics. And it has put $140 million of its own endowment into impact investments. 

National Journal's Sophie Quinton recently talked with Rockefeller Foundation President Judith Rodin about how private capital can help alleviate government budget pressures and address some of the challenges that weigh on our economy and society. Edited excerpts follow. 

First things first: What is impact investing?

We hosted a conference in 2007 where the term was coined. It was to refer to investments that were designed to deliver both financial and social or environmental returns. Impact investors are making an active decision to invest in a company, or in a fund, for both profit and for social good.

Who—or what—are impact investors?

The most interest, so far, has been from large family wealth management companies, high-net-worth individuals, and pieces of funds that have a specific designation for double bottom-line returns. I think the field is starting to develop enough data that more people are going to come into the space. An early analyst report that we did with J.P. Morgan suggests that ultimately, if this continues to move and accelerate at the pace it is now, it could unleash somewhere between $400 billion and $1 trillion in capital markets. That’s a long-term, optimistic analysis. But there are billions being invested right now.

How do we measure social impact, in addition to financial impact?

Many potential investors say, "I know how to do the financial due diligence; I don’t know how to do social due diligence because I don’t know what social impact looks like." We funded several grantees that have created standards, like GIIRS and IRIS: One rates the financial and social return of funds, and one rates the social impact of companies the funds are invested in. That will accelerate investment opportunities, but it’s a really important step for public policy. We want a uniform set of standards that policy can be built around to enable this field to grow.

Where are we seeing this kind of investment? Are we seeing more activity in developing countries, or domestically?

The U.S. is the best market, actually. The developed world is clearly the best market—there are reams of opportunities, and much more experience. In the U.S., the earliest use of this has been around affordable housing, where there have been many investment funds that have invested alongside government or in place of government.

Here’s one innovation: In the 2000s, New York City wanted to build more affordable housing. They needed to get new land acquired and the preconstruction costs done by developers, but without tax credits it was hard to get commercial financing. So we and other foundations put in about $40 [million] to 50 million of the riskiest capital. 

Because we were guaranteeing the first tier of risk, the commercial lenders came in with several hundred million, and then New York City came in with loans and debt capacity.

Other than housing, what other opportunities exist for impact investing in the United States?

Clean energy is one area. The interesting thing about impact investing is, it exists in every asset class from public equity to private equity, from public debt to private debt. That makes it available for a wide variety of applications.

Another impact-investing innovation is the social-impact bond, and they’re being used to address a broad range of things—homelessness, recidivism, health. In his budget, the president announced for the third year that the U.S. government is going to put money behind what he calls pay-for-success bonds. He also proposed a $300 million pay-for-success fund in the Treasury Department, for loan guarantees to undergird investors or banks to participate. We think that’s important, and critical, at this stage of evolution, but we think that’s a way station to a point where government or philanthropy shouldn’t have to backstop the private investor.

What will it take to make impact investing mainstream?

The first and most important thing is long-term data. Until the real range of rates of return for each of the impact investing asset classes—both equities and public debt—can really be calculated with long-term experience, the biggest money will sit on the sidelines.

The second thing is an enabling policy environment. One policy that has been transformational has been the evolution of benefit corporation legislation, which allows companies to register themselves differently. Also, several big auditing firms want to add an impact investing assessment to their auditing practice. Once you have an auditing practice, you’ll get an even further refinement of the standards and further standardization of the metrics, and that’s going to accelerate the field. 

What’s the Rockefeller Foundation currently focused on?

Our focus is on impact financing for infrastructure. There’s huge pent-up demand for infrastructure investment, and we’ve been working with states and regions to help them understand what kinds of laws, policies and actions are going to be necessary to crowd in private capital.

We have seen much more significant private investment in infrastructure in other developed countries than we see in the U.S. When we talk to those infrastructure funds, they say the U.S. doesn’t have the right policy environment for us to invest as heavily as we have elsewhere. Canada is crowding in a lot of private investment, without giving up public control.

We’re working with the West Coast Infrastructure Exchange, which is California, Washington, Oregon and British Columbia. They estimate that they’re going to need about $1.5 trillion in new investment over the next ten years. They’re looking for public private partnerships, and we’re working with them on the policy framework that would enable that to happen.

Young people, in particular, are excited about impact investing. Do you have any advice for young people who want to enter the field?

The advice is that we shouldn’t move too quickly. This is not a panacea, and it is not the solution to less government funding. But there’s a way to kind of bring Wall Street to Main Street, for social good. If we get this right, that’s a phenomenal outcome. But it’s not for everything, and one size doesn’t fit all.

By Sophie Quinton
Updated: May 7, 2013 | 12:24 p.m. 
May 7, 2013 | 10:10 a.m
From http://www.nationaljournal.com/

Endowment policies: should I cut my losses?

Endowment holders face another cut in payouts. Is it better to stay in for the long haul or cash your policy in early?


Patrick Collinson
The Guardian, Saturday 2 March 201
From http://www.guardian.co.uk/money/

Some endowments, such as Standard Life, contain guarantees, but if there is no guarantee or final bonus, you might consider cashing in. Photograph: Murdo Macleod

There are still millions of endowment policies in force, with some 2m alone maturing this year. So if you have one of these, what are your options?

• Should I carry on paying the monthly premium or would that be throwing good money after bad?

First, you should contact your provider for a projection to see what your policy is worth now (its "surrender value") and what it might be worth at maturity. Make sure you update the company if you have changed address. Then ask the following questions:

• Are there any guarantees in the endowment? Some policies, such as older contracts at NPI, have guaranteed annual bonuses of 4%, which is better than anything you will find on deposit at a bank. Some funds at Zurich and Standard Life also contain guarantees.

• Is there an "estate distribution"? Some of the grand old insurers have built up reserves (known as estates) beyond what is needed to pay policyholders. The financiers and shareholders are desperate to grab them, but the regulators insist they share the cash with policyholders. Britannic, Scottish Mutual, Scottish Provident and Pearl are all distributing residual estates. It's one reason why Pearl is one of the few major companies to have increased payouts this year. But these only apply if your endowment is with-profits rather than unit-linked.

• Will I pay a penalty to get out of my endowment? Probably. Insurers call it the market value adjustment or MVR and it can be over 5%. Ask if the policy has an MVR-free date when you can cash in without penalty.

• Is there a decent final bonus? If you have a unit-linked policy, it rises and falls in line with the underlying investments and doesn't offer a final bonus. But if your policy is with-profits there is likely to be an element of final bonus, although this varies enormously. Most Phoenix policies are paying near-zero annual bonuses but are paying relatively large final bonuses. For example, on a Scottish Provident 25-year, £50 per month policy, almost a third of the £33,810 maturity value is made up of a £10,000 terminal bonus. But a Sun Alliance policy paying out £24,634 has a terminal bonus of just £3,104.

• What is the endowment invested in? Some endowment funds have almost sold out of shares. So if the stock market jumps, the value of the endowment barely rises. Typically, only around a third of an endowment is in shares but some are higher. Patrick Connolly at AWD Chase de Vere is a fan of Prudential, which has some of the highest endowment payouts. He said: "The financial strength of the product provider, its ability to invest in growth assets such as equities and its commitment to paying competitive bonuses should be important considerations. Prudential is the market leader in all these respects."

• Can I claim any compensation for mis-selling? Most policyholders are now outside the time limit for making a complaint – which has to be three years after the date you received the first letter warning of a high risk of a shortfall on the policy (and at least six years since taking the policy out).

• So should I cash it in? Take the surrender value, add in the remaining payments you have to make, and compare it to the projected maturity value. Calculate the additional savings you'll make by paying off most of your mortgage now. If it's anywhere near the maturity value, then it's probably best to cash in.

Case study: From sure fire to sure loser

It was the "sure fire" way to pay off a mortgage, said the Legal & General salesman to first-time buyers Gideon and Anne in 1991. They'd even get an extra lump sum at the end, to spend on a new car or holiday. All they had to do was pay £123 a month into an endowment for the next 25 years, and their £77,900 interest-only mortgage could be safely forgotten about.

But what the adviser did not say was that he'd pocket a commission of around £1,700, and that his projections were hopelessly optimistic. "At no point was there any suggestion this would fail to pay off the mortgage, or any talk of fees or charges," says Gideon, an architect from West London.

Yet within just nine years it emerged that the endowment was falling far short of expectations. L&G wrote to the couple, warning of a potential shortfall of £20,000. Three years later it also admitted that the projections given at the outset would never have been met – because the premiums were based on "industry standard charging assumptions" when in truth, L&G's charges were higher.

In 2006 the couple complained to L&G, by phone, about the performance of the endowment, but were told the blame lay in stock markets rather than mis-selling. "I got a mealy-mouthed letter in reply and no suggestion that we could take it further," says Gideon.

He now regrets shuffling the papers to the back of the family's filing cabinet. Last April he tried to make a formal complaintabout the endowment, but was told by L&G he was "out of time".

This January, with the endowment shortfall now projected at £26,000, the couple took the opportunity of the stock market rally to cash in. They received £43,937 – after £31,416 of payments over more than 21 years.

Gideon says: "We would have done a lot better putting our monthly £123 in a building society, especially given the high interest rates in building societies in the 90s and early 2000s. Add to this all the money we have paid on our interest-only mortgage – it was in the seven and eight percents for much of the time – and – we have lost hand over fist. The only thing saving us now is the drop in interest rates in the past few years, so at least we are able to overpay our mortgage"

Patrick Collinson
The Guardian, Saturday 2 March 201
From http://www.guardian.co.uk/money/

HNIs can look at startup firms as good investment options

By Vivek Karwa Apr 11 2012

Article from mydigitalfc.com

Income levels of individuals in our country have increased, and so has the risk-taking ability of the middle class. They have now started investing in riskier products like equities, knowing very well that the markets can deliver superior returns over a period of time.

A large part of the credit for this transformation goes to the financial planners. Financial planners now-a-days are seriously focusing towards self skill development and have started giving need-based advice. The focus on asset allocation also depends on the hierarchy of needs of an investor. These needs are adding up, particularly in the middle and top-end of the hierarchy who are ready to venture into other asset classes also.

The assets which you may find in the portfolios of a regular investor today may be as under:

>> Lower level: Endowment insurance plans, fixed deposits (FDs), gold, >> Middle level: In addition to portfolio of lower level, they will have unit-linked insurance policies (Ulips), equity mutual funds systematic investment plans (SIPs), house property and equities.

>> Higher level: In addition to the above, they will surely be holding real estate, structured products, e-commodities and will be involved in equity derivatives and commodities markets.

Many equity market investors have one common doubt today, should they be involved in commodities market and the currency market. The answer is ‘yes’. But three caveat’s: 1) Unless you know how these markets work, don’t risk your money. 2) If you have no knowledge, then take advise from a qualified adviser. 3) Enter these markets with hedging in mind and not for making quick money.

Research has proved that equities, commodities and currencies have both positive correlation and negative correlation with each other. Hence, one can always hedge or may find a trading opportunity across market segments.

The biggest drawback of these markets is the lack of understanding and, hence, investors need to take the right step of going through financial planners. Since these markets are still largely unknown to the retail investors, they are often lured into schemes which promise to pay above normal returns. Clear understanding can provide a great opportunity towards better asset allocation. One cannot be sure which will be the next best performing asset in the next cycle and, thus, exposure to multiple market ensure we don’t miss out the cycle.

One such investment opportunity which not many people understand and the top-end high networth individuals (HNI) can look seriously at is investing in the startup companies. Companies like Facebook, Linkedin became big in no time, creating huge wealth for the investors. Also, we have success examples of Flipkart and Snapdeal in India.

Many entrepreneurs have ideas which can be huge success, but most of these startup are money-hungry to fuel up the growth process. These companies are initially started with promoters’ own funds.

India will be the largest consumer market in the world by the year 2025. It, at present, has around 120 million internet users and the number is rising rapidly. Most of the companies which have made big in short duration are in the field of technology and internet. Investors like Rakesh Jhunjhunwala have made big money in this way. A2Z maintenance is one of the examples.

Investing in startup is called the ‘angel funding’. These investors are termed as ‘angel investors’ since they act as the saviors when the company is requiring money. There are many angel investors (read HNI investors) who have come forward and formed groups like Mumbai angels and Chennai angels to source such opportunities where they can invest and make big money. The process is angel investors — venture capital — private equity — initial public offering (IPO). IPO is the final thing where everyone unlocks the real money if the company makes a huge success.

Right company and right valuations is the key. Many HNIs are investing in startups these days, but this requires expertise. There are advisers who have enough knowledge in this segment and can help you choose the right companies.

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are personal, and do not necessarily represent that of the organisation. PSB India is the sole marks licensing authority

for the CFPCM marks in India)

Article from mydigitalfc.com

With-profits unlikely to revive

April 8, 2012 4:09 am

By Pauline Skypala

Article from ft.com

With-profits policies turned out to be the best investment he ever made, an industry contact told me recently (not a fund manager). He paid £80 a month over 30 years (£28,800 in total) and got back £205,000 when he took the money in 2002.

By contrast, the £350,000 he has paid into a defined contribution (DC) pension plan for him and his wife since 1988 is now worth £500,000.

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Shame he did not stick to the with-profits approach – or maybe not. The annual with-profits survey by Money Management, an FT publication, shows my contact cashed out at the right time.

The average payout at maturity on a £50 a month 25-year with-profits endowment has more than halved since 2002, falling from £87,169 to £38,299. Payouts peaked in 2000, when the average was £98,370.

Had my contact cashed in his policies in 2000, he would have made 10 per cent more, he says. Timing is everything in investment – even in with-profits, an approach that is supposed to smooth out stock market fluctuations.

The with-profits sector in the UK is practically moribund, with few companies still open for new business.

The approach was felled by the dotcom bust that brought the long bull market of the 1990s to an end, and by the expensive guarantees life companies had incorporated into policies. They did not have enough capital to support them, having blithely mismatched assets and liabilities for many years by being heavily exposed to equities.

Instead of being steady-as-she-goes investments, supported by balanced portfolios, they became racy growth investments betting on equities to outperform over the long term. Instead of cautiously increasing policy values by annual bonuses, the focus moved to paying big final bonuses when policies matured (which many policyholders did not get, having cashed in early).

And instead of remaining mutual (as most with-profits insurers were), they converted to plcs, paying out large amounts to policyholders in compensation.

Looking back at what went wrong with the with-profits approach is instructive, as there appears to be talk of reviving it in the pensions sector.

Pensions minister Steve Webb has put forward the idea of “defined ambition/aspiration” pensions, a halfway house between defined contribution and defined benefit, modelled on the so-called collective DC approach pioneered in the Netherlands.

Mr Webb has yet to put flesh on the bones of this idea but it is not a new one. I wrote about it two years ago, when investment consultants were lobbying for importing CDC to the UK. Maybe they successfully persuaded Mr Webb of the merits of this plan.

The Department for Work and Pensions poured cold water on the idea in a report published in December 2009, despite its modelling showing average outcomes would be 20-25 per cent better under CDC schemes than under conventional DC. It cast doubt on the ability to manage risk successfully so as to be fair to different generations of scheme members.

This is the key issue with any scheme that relies on intergenerational risk sharing. It is essentially where with-profits broke down.

And because of that breakdown, it is doubtful whether pension savers in the UK would trust financial institutions to be fair, even if they thought they were capable of managing risk successfully.

The fairness problem leaps out from the Money Management survey. The best result for 25-year endowments is Phoenix Assurance’s £185,115 payout, representing a 16.8 per cent annualised return. That may sound impressive, but it is down from £342,949 in 2007.

Such huge payouts are not due to fantastic returns from skilled investment managers; they are simply because there are only a few thousand policyholders left (Phoenix closed to new business in 1986) and they are getting the benefit of the division of the estate – which is the money in the fund surplus to that needed to meet policyholder commitments.

Phoenix Assurance is one of 13 closed with-profits funds taken over by Phoenix Group (sharing a name is coincidental), most of which paid out £20,000-£32,000 on 25-year endowments this year.

Kevin Arnott, director of with-profits management at Phoenix Group, says Phoenix Assurance is unusual and such high payouts are unlikely to be on offer from other closed funds as they wind down. Some funds have no surplus assets, and need support from Phoenix Group just to meet policyholder commitments.

It looks like a lottery.

Risk-sharing is a nice idea in theory, and may work well in some places. Mr Arnott’s judgment is that the world has moved on from with-profits and the cross-subsidies involved are no longer acceptable to UK savers.

Mr Webb’s defined ambition schemes will have to be different in design and practice if they are to fly.

pauline.skypala@ft.com

Article from ft.com

Keys to Thinking About Keynes

April 3, 2012, 7:00 AM

By Jason Zweig

Article from The Wall Street Journal

My column this past weekend about the remarkable investing record of John Maynard Keynes provoked an outpouring of comments – and incidentally provided an object lesson on a couple of basic principles from behavioral finance.

Investors succumb to the halo effect when they let their general evaluation of a person or situation cast a warm glow over their assessment of specific aspects of the same person or situation. If you love your iPhone or iPad, you may well love Apple’s stock price, too, no matter how high it might go. Likewise, liberals who admire Keynes’s interventionist economic theories rushed to defend him as an investor.

But Keynes was neither a good nor a bad investor because you agree or disagree with his investment policies. His track record as an investor should be judged just as any other investor’s should be: by the numbers. And, as my column pointed out, Keynes’s investment results were extraordinary – regardless of whether you love his economic theories or you hate them.

Another, related effect: Investors exhibit confirmation bias when they tend to view all new evidence through the old lens of their existing beliefs. They disregard whatever might tend to disprove what they already believe, even while they point eagerly to any information that reinforces the views they already hold.

Thus, several commenters ridiculed the notion that Keynes could have had access to inside information on interest rates and currency values without trading on it. Others insisted that he was front-running his own economic policies, buying gold before he debauched the value of the British pound.

But, to paraphrase Keynes’s friend Bertrand Russell, it’s important to distinguish what you wish were true from what you believe is true.

You may wish that Keynes traded on privileged information, but that doesn’t make it true. There is zero evidence that he ever traded on inside information; furthermore, as my column pointed out, Keynes’s investing performance improved when he stopped relying on his own macroeconomic forecasts.

You may also wish that Keynes was somehow front-running his own policies, but that  doesn’t make it true, either. His play on gold-mining shares was motivated by the devaluation of the South African rand, which had nothing to do with his own policies. And his strategic shift into mining stocks played out over the course of six or seven years, hardly the sort of timescale over which anyone would try a front-running scheme.

It’s also worth reemphasizing that the Keynes portfolio analyzed in the new research wasn’t his personal fortune; it was the endowment fund of King’s College at the University of Cambridge. To suggest that Keynes was effectively lining his own pockets with the misfortunes that his bad policies inflicted on other people doesn’t wash.

In short, what you think about Keynes as an economic theorist should have nothing to do with the question of how good an investor he was.

Similarly, investors should always be on guard against the halo effect and confirmation bias. When you ask a question about an investment, make sure you don’t end up answering a different question entirely.

Article from The Wall Street Journal