Over the years, we have had substantial experience managing foundation and endowment portfolios. After working with the investment committee of a Midwestern foundation for several years, one of the members asked if we would manage his personal Trust portfolio. His Will stipulated that when he and his wife passed away, the assets in the Trust would convert into a foundation that would support several of his favorite causes.

Upon the deaths of the client and his wife, the Trust became The Skillmore Foundation. While the account was fully invested, it was not perfectly suited to the new foundation's needs. Because this had been a personal account, it held a number of municipal bonds that needed to be transitioned to corporates and treasuries, as these provide higher yields for a tax exempt portfolio. Our equity investment style was (and remains) a natural fit for a foundation's long-term investment horizon; the companies we invest in have above-average earnings growth potential that over time drive stock prices and dividend growth. These factors are essential to sustaining a foundation. Because of the age of the clients, the large embedded gains in the original account, and capital gains tax rates that were significantly higher than they are now, the equity portfolio had a number of large, low cost holdings. With the tax consequences removed, we were able to trim some of the large positions and build up others. This resulted in a more diversified portfolio.

The next step was to work with the investment committee to develop an investment policy statement to define the organization's long-term objectives, cash requirements, investment restrictions and performance benchmarks. These guidelines are essential and provide a useful tool for the manager and the investment committee. They are not, however, written in stone. Regular communication is a must. We typically meet twice a year, once via teleconference and once in person. At these meetings we review the portfolio, the performance and the market. Our discussions have centered on the proper asset allocation, taking into account the current market environment and the organization's cash needs. When necessary, we have made small adjustments to the asset allocation, and attentiveness such as this has allowed the foundation to navigate the market's ebbs and flows without jeopardizing the distributions to its charities or its mission.

Preserving capital and generating sufficient income to meet the distributions needs of foundations and endowments are of utmost importance. We're proud to have done so for this organization for more than 20 years both at Marble Harbor and David L. Babson & Company.