Choosing the Best Investment Options
The investment funds of the Cleveland Foundation are guided by an Investment Committee, which is comprised of directors and external volunteers who are knowledgeable in investment and financial matters. The Investment Committee is advised by an independent consultant who, along with staff, assists in setting the investment policies and guidelines that govern the investments.
We understand that no single investment plan can meet every person’s needs. That’s why when you create a fund with the Cleveland Foundation, you can choose to invest it in the following ways:
- Cleveland Foundation Pool
The Cleveland Foundation Pool combines a number of donor funds into a single portfolio. The pool allows participating donor funds access to investment managers and products that traditionally require a very high initial investment.
The Cleveland Foundation Pool follows a multiple-firms approach in which managers are hired for a specific asset class. This method gives the pool the broadest diversification possible in both asset classes and managers.
The Cleveland Foundation’s Investment Committee has set a target asset allocation for the pool, illustrated in the chart to the right.
The Investment Committee regularly monitors the performance of each of the pool’s managers to ensure they are continuing to meet the foundation’s investment standards.
- Firms & Banks
The foundation, by declaration of trust, maintains active relationships with five trust banks, including KeyBank, PNC, Huntington, JP Morgan, and First Merit and has also allowed local investment firms to manage assets. Because of the diversification of investments they offer, firms and banks provide a balanced investment approach through the use of specialized managers and multiple investment products in a given asset class. Firms and banks typically pool individual donor funds to provide greater administrative efficiencies and custody the assets with KeyBank.
The firms and banks follow the asset allocation guidelines of the investment policy set forth by the Cleveland Foundation’s Investment Committee. Staff meets with the firms and banks at least twice annually, and the Investment Committee regularly monitors the performance of the managers to ensure they are continuing to meet the foundation’s investment standards. For the largest pools, which are managed by KeyBank and PNC, the target asset allocation is the same as that for the Cleveland Foundation Pool. For all other firms and banks, there are two sets of guidelines from which they can choose to manage assets, one with and one without alternative investments such as real estate, hedge funds, etc. The guideline targets are illustrated below.
Firms and Banks With Alternatives
Firms and Banks Without Alternatives
The Cleveland Foundation has approved a number of firms and banks whose investment strategy is consistent with that of its investment policy. These include:
- Carnegie Capital
- Fairport Asset Management
- FirstMerit Bank
- Glenmede Trust Co.
- Hartland & Co.
- Huntington National Bank
- JPMorgan Private Bank
- Northern Trust
- PNC Bank
- U.S. Bank
- Indexed Mutual Funds
The Cleveland Foundation provides indexed mutual funds as an option for donors who prefer a passive investment strategy. The asset allocation structure is shown to the right and is composed of a pool of mutual funds managed by Vanguard.
The Investment Committee regularly monitors the performance of its indexed mutual funds. The allocations are rebalanced on a quarterly basis or more frequently in accordance with cash flow needs.
- Individual Advisors
Individual advisors are an option for donors looking to establish a significant fund (> $1 million) with the Cleveland Foundation while maintaining a relationship with their existing financial advisor.
General asset allocation guidelines are set by the Investment Committee and are the same as those in place for the firms and banks. Assets of a donor’s fund invested with an individual advisor are custodied at KeyBank and may or may not be pooled with other funds managed by a particular advisor. The Cleveland Foundation has relationships with individual advisors from the following firms:
- BDS Financial Service Corporation
- Merrill Lynch
- Robert W. Baird & Co.
- UBS Financial Services
- Wells Fargo Advisors
Advantages of a Community Foundation
Community foundations give donors benefits not available through private foundations. The chart below briefly summarizes the key differences between community foundations (using examples of two different fund types) and private foundations.
The Cleveland Foundation vs. Private Foundations
|Private Foundation||Donor-Advised Fund of the Cleveland Foundation||Supporting Organization of the Cleveland Foundation|
|Legal Identity||Separate nonprofit entity||[Donor’s Choice of Name] Fund of the Cleveland Foundation||[Donor’s Choice of Name] Fund of the Cleveland Foundation (separate nonprofit entity affiliated with the Cleveland Foundation)|
|Tax Status||Private foundation||Public charity||Public charity|
|Taxation of Investment Income||2% annually||None||None|
|Payout Requirement||Grants must equal 5% of corpus annually||None||None|
|Deductibility of Gifts||Deductibility: 20% AGI* for appreciated property 30% AGI* for cash||Deductibility: 30% AGI* for appreciated property 50% AGI* for cash||Deductibility: 30% AGI* for appreciated property 50% AGI* for cash|
|Administration||Detailed annual filing with IRS||All record-keeping and accounting carried out by the Cleveland Foundation||All record-keeping and accounting carried out by the Cleveland Foundation|
|Grantmaking Expertise||Professional staff, if any (unusual for a small foundation)||The Cleveland Foundation staff assistance to review and monitor proposals.||The Cleveland Foundation staff assistance to review and monitor proposals|
|Control||Trustees have complete control of distributions and responsibility for asset management||Donor-advisor may make grant recommendations.||Own board of directors, a majority of whom are appointed by the Cleveland Foundation|
|Cost||Costs include legal and accounting fees, insurance, office space, staff and miscellaneous expenses.||No cost to establish. Annual fees assessed are: $250 for funds established with under $25,000; 90 basis points for funds between $25,000 and $1 million; and 50 basis points for funds
over $1 million
|No cost to establish. Annual fees are 75 basis points for funds with assets from $5 million to $7 million, and 50 basis points for funds with assets greater than $7 million on market value of fund plus investment fee|
* Adjusted Gross Income