STEWARDSHIP, Simplified, For the Long Run

In 2009, Crawford Investment Counsel was hired by an endowment & foundation client to manage a reserve fund and endowment. Total investment assets were approximately $10 million, and the organization had secured significant sources of funding for its endowment in the years to come. Prior to Crawford’s assumption of management, both the endowment and reserve fund had the same Investment Policy Statement (IPS), which called for high levels of diversification. This included allocations to real assets, hedge funds, and other alternative investments. Due to the size of the account, however, implementation across many of the asset categories was suboptimal, and the historical returns bore this out.

Costs were high, the portfolio was producing almost no income, and the financial crisis had recently illustrated that in times of financial distress, asset correlations are high on the downside. What appeared to be a diversified pool of assets turned out to be highly correlated, as U.S. and International stocks went down in unison. As the recession unfolded, the client’s hedge fund allocation did not provide protection of capital, and real asset prices deteriorated alongside stock prices due to a broad lack of demand. Additionally, some of the client’s more esoteric investments fared particularly poorly, leading to permanent capital losses.

At this time, adjustments related to organizational funding were also being contemplated and their implications more widely understood. Essentially, the client’s revenue cycle was facing a change due to a term extension of membership dues. That is, income was coming in at a healthy rate, but the organization needed to prepare for the possibility that there could be a 3-5 year period where the reserve portfolio would be the primary source of funding for its operations. The paradox was this: the organization needed to maximize return on recently secured funding to build up financial resources and provide for the future, but with 6-7 years before the possibility of a major funding shortfall, the organization was forced to be more risk averse. The potential existed that investments could decline over this 6-7 year time frame, exacerbating the financial hardship and threatening the organization’s survival.

Crawford employed its investment philosophy and produced financial models and projections to demonstrate a sound potential path forward. Our plan and overall investment philosophy resonated with the client’s CFO and trustees, and a logical roadmap was produced. The path forward was rooted in the high-quality, income-producing nature of Crawford’s investment approach, which sought to help the organization overcome much of the uncertainty associated with investing.

We believe Crawford’s approach to managing endowment & foundation portfolios has the valuable byproducts of greater transparency, lower risk, and higher income, all of which help narrow the range of potential investment outcomes. Investing in high-quality companies offers a more predictable pattern of earnings, dividends, and returns, while providing a lower likelihood of suffering dramatic losses in a drawdown. By focusing on owning individual, high-quality companies and utilizing our proprietary strategies, Crawford believes our investors benefit from the fundamental progress of the businesses they are invested in, sustaining participation in rising markets and achieving protection during down markets. In this case, since there was great organizational uncertainty, the higher likelihood of achieving positive returns along with the benefits of income and growth of income were particularly critical to the entity.

Crawford did three things that made the difference for this client. 1. We prioritized organizational needs and perspective over pure investment results. 2. We brought our experience in dealing with organizations of this nature, along with our proficiency in financial modelling. 3. We applied our common-sense approach to high-quality investing, which seeks to maximize investment returns while lowering risk. The third point is critical, because it allows the firm’s endowment & foundation clients to satisfy their fiduciary duty in such a way that their investment portfolios support the organizational priorities, while at the same time protecting against the always uncertain economic future. With Crawford as a steward, we think organizations can take great confidence in the companies that make up their portfolios and the investment program as a whole. Coupled with the high level of client service and engagement that Crawford provides, this helps create successful outcomes on the part of the firm’s endowment & foundation clients.

Crawford’s role in client engagement is multi-faceted, but in this case it was primarily the planning, foresight, and stewardship provided that enabled the client to bridge a potential funding gap which was vital to its survival. The livelihood of the entity was preserved, and Crawford is pleased to report it is now thriving.

Crawford Investment Counsel (“Crawford”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Crawford, including our investment strategies, fees and objectives, can be found in our Form CRS or Form ADV Part 2, which is available upon request.

Past performance is not indicative of future results. This material is distributed for informational purposes only. The opinions expressed are those of Crawford. Forward looking statements cannot be guaranteed. Crawford reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. All investments involve risk, including loss of principal and there is no guarantee that investment objectives will be met.

It is not known whether the clients listed above approve or disapprove of Crawford or the advisory services it has provided. Performance was not a determining factor for inclusion.


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