The synod is sending an overture to the 2008 General Assembly asking that the General Assembly Council (GAC) of the Presbyterian Church (U.S.A.) be allowed to invest its money outside of the foundation.
That overture asks the General Assembly to remove a restriction imposed in 1986 that requires the council to invest all of its mid-range and long-term investments solely with the foundation. The synod is asking that the council be given the same flexibility that the other five General Assembly entities already have, to invest elsewhere if they choose.
Synod executive Jan DeVries, presented the overture to council committees. It contends that the council might gain a higher rate of return by investing through the private market and, by doing so, could produce more money to be used for mission by a denomination that has cut valued programs because of a shortage of funds.
But Robert Leech, the foundation’s chief executive officer, said that achieving a higher rate of return would involve incurring more risk of loss and that the foundation tries to produce consistent rates of return with a lower level of risk.
Also, “we’re concerned about the example to the church that this overture brings,” Leech said. If the assembly decides the council can invest outside the foundation, others may say, “Why can’t we do that?” he said — and that makes it harder to defend the idea “that people should invest with the church.”
DeVries suggested that that one option would be for the council and the foundation to work on a “collaborative response,” a way of suggesting to the assembly a plan of action that would respond to the overture and address the synod’s concerns without requiring an up-or-down vote on the overture. “There are many more options than saying yes or no to the overture,” DeVries said.
So the council voted to authorize its chair, Allison Seed, and council member Reg Kuhn, who serves as a liaison to the Presbyterian Foundation, to continue discussions with the foundation regarding the overture and other financial issues. Seed and Kuhn then would make their recommendations to the council via conference call.
According to DeVries, the council has about $445 million invested with the foundation overall, which is about 20 percent of the foundation’s $2 billion in managed assets.
Of the council’s investments, anywhere from $70 million to $105 million conceivably could be moved if the assembly changed the rules, DeVries said. Even a 1 percent change in the rate of return, she said, could produce $700,000 to $1 million for the council could use for mission.
DeVries told the council’s executive committee on April 23 that the foundation’s returns have been well below what’s available in the private financial market. The Synod of the Southwest, for example, moved $1.3 million from the foundation’s New Covenant growth funds to Smith Barney, and in 2007 earned a 10.67 percent return, compared to the 5.09 percent return published for the foundation.
“Twice the amount of money for the mission of Jesus Christ makes a big difference,” DeVries said.
But Leech told the council’s Stewardship Committee that the foundation’s investment strategy is intentionally different from that of some private investment firms. He said the foundation tries to produce for its investors consistent rates of return and to “minimize fluctuations” so congregations that invest, for example, will have a better sense from year to year of what kind of income they can expect. To achieve a higher rate of return may involve accepting more risk in the marketplace than those investors want, he said.
Leech said the foundation tries to be more a singles-hitter than a home-run king, who inevitably “is going to strike out a lot.”
But DeVries contends that a denomination that has repeatedly cut programs and staff because there’s not enough money to go around needs to consider whether the return the foundation is producing is adequate. She told the committee that minutes from the 2006 General Assembly show that a review of the foundation — a report she said the assembly approved — “stresses the concern about the foundation needing to improve the return on investments in order to continue to attract new donors.”
DeVries stressed that “this overture is not intended to be an attack on the Presbyterian Foundation,” although she acknowledged that “there are some moments in which it feels that way.”
But the intent “is really to maximize the money that’s available to GAC to do the mission of the whole church and to put the GAC in the same position as the other agencies of the PC(USA).”
DeVries said the 1986 directive limiting the council to investing with the foundation was passed in a much different environment – at the time of reunion of the northern and southern branches of the Presbyterian church, when the foundation had just been spun off as a separate entity, and the assembly wanted to assure the success of the new foundation.
Leech told the executive committee, however, that the overture is of concern both to him and to the leadership of the foundation’s board of trustees.
“This overture was a surprise to us, candidly,” Leech said. “We were kind of blind-sided.”
Leech told the committee that only three of the denomination’s 16 synods invest outside of the foundation, 12 invest with the foundation, and one synod does not have any money available to invest. He also said 78 percent of presbyteries invest with the foundation, as do many congregations, and the foundation is “financially sound.”
Leech said he did not know whether the synods that invest with other firms are earning a better rate of return than the foundation is paying – “we have not been provided with a list” showing whether that’s accurate or not.
Leech, however, said the rate on return on investment isn’t the only factor that should be considered. “The absolute best performance at the lowest cost has not been the goal of the assembly,” Leech said, pointing out other factors, such as meeting socially-responsible investment goals as determined by the PC(USA)’s Mission Responsibility Through Investment program, also affect the foundation’s investment strategy.
Some council members, for example, have concerns about the council seeming not to support the foundation if it seeks the freedom to invest elsewhere. At a time when the PC(USA) is fragmented, to say “we’re not going to support one of the six main agencies of the church” is a cause for concern, Kuhn said.
Frank Adams, chair of the Stewardship Committee, said that if the council has a choice about where to invest, it will have to hire people to advise it on whether to go with the foundation or somewhere else, which could add to the council’s expenses.
And Linda Valentine, the council’s executive director, said that if the council has more flexibility in how it invests, with that would come more accountability. The council could be evaluated on its investment choices, she said — whereas now “it’s the foundation’s responsibility.”
In an interview, Valentine said, “the foundation has the responsibility to do the very best investing it can” within the parameters the assembly has established (parameters which DeVries said would be maintained through the overture as well).
When it comes to returns, “we are keenly interested in how well the foundation does because this has a very direct impact on how much money is available for mission,” Valentine said. “We think the foundation should be held to the utmost standard for getting the best return it can within the investment parameters the church sets. … We think it’s appropriate that the spotlight shines on the foundation, so they can be the best investors for the church they can be.”
DeVries said the synod would be willing to consider withdrawing the overture, if certain conditions were met, or taking some other approach that would not require the assembly to vote the overture up or down. One approach, she suggested, would be a joint referral “with instruction” to the assembly from the council and from the foundation’s board, which would present to the assembly a suggested plan of action.
According to DeVries, the instructions the synod would suggest presenting to the assembly would include:
• Identifying a single portfolio manager who would handle the council’s investment funds with the foundation;
• Developing strategies for increasing the council’s return on investments while still complying with any General Assembly guidelines for investing;
• Specifying what kinds of reports the foundation would have to provide the council, and how often those reports would be made, so the council would better be able to track the return on its investments;
• Requiring the executive committees of the foundation and the council to report back to the assembly in 2010 and to provide a report by the end of 2009, so the synod could either submit the overture again in 2010, if it chose, or “applaud the resolution,” if things are worked out.