First, Do No Harm
by Jamie Hyndman, Mawer Investment Management
Jan 25th, 2013
I attended the Strategy Instituteās Foundation, Endowment & Not-for-Profit conference in Toronto last week. Itās a great event that brings together some of the top minds in the investment industry and the not-for-profit sector.
This area is an important one for Mawer because we manage over $2.5 billion in assets for not-for-profit entities and it has been a core focus for our firm for many years now. We are proud to be helping hospitals, schools, arts organizations, and a broad range of other not-for-profits do great things for our communities.
Now, managing money for not-for-profits requires a very prudent approach because the safety of the funds is absolutely critical. This is because they will ultimately be used to do important things such as buying medical equipment, building schools, and the like. As such, I think the essence of the Hippocratic Oath that doctors take prior to practicing medicine, which is āfirst, do no harmā is very appropriate to describe the investment approach necessary for this group of vital institutions. In other words, an approach that is rational and that does not put capital at undue risk is required. We endeavor to do this by focusing on high quality securities that trade at fair valuations, not just for our not-for-profit clients, but for all of them.
Unfortunately, much of what I heard at the conference was in contradiction to this core principle. The low yield environment has many not-for-profits scrambling to find additional return. Hedge funds, foreign bonds, high yield bonds, and emerging markets were all ideas put forth as ways to offset the low return environment.
While some of these strategies may make sense in a well diversified portfolio, it must be stated that there is no free lunch. Additional return usually comes at the expense of additional risk. We know this well and donāt think reaching for additional return is the appropriate response. In a low return environment, there will be times when investors have to modify their expectations and consequently alter their existing operations or lifestyle. While not comfortable, this is likely a more prudent approach than assuming additional risk.
Jamie Hyndman
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