Room for improvement in Empowerment Endowment asset management

A new independent research report carried out by Intellidex and funded by Tshikululu Social Investments has found significant room for improvement in the asset management of Empowerment Endowments, corporate social investment trusts and funds.

A new report, Understanding Empowerment Endowments, the first of its kind delving into BEE foundations, has uncovered a number of asset management challenges in Empowerment Endowments, corporate social investment trusts and funds.

The report was based on a six-month research exercise into the charitable and community components of 25 trusts and foundations created and endowed under black economic empowerment policies, with a collective value of around R37 billion.

“An important theme explored in this report was asset management,” says Tracey Henry, CEO of Tshikululu Social Investments. “The study found that most of the BEE foundations in South Africa do not have appropriate policies and procedures for asset management: 80% do not have an investment policy statement; and 80% do not have an investment or finance committee to review the spending policy on a regular basis to ensure that it is reasonable relative to the risk profile of the foundation.” The foundations without investment committees mostly make use of the sponsor company’s own risk management, governance and compliance structures.

The report also noted that most of the foundations hold investment portfolios that consist only of the sponsoring company’s shares largely because most are still restricted from selling their shares. “This represents a highly inefficient investment strategy as it means the endowment is subject to the performance of just a single company. They face a major concentration risk,” says Henry.

Because well-managed foundations can provide economic benefits to beneficiaries into perpetuity, the report said that prudent asset management is critical for the long-term sustainability of foundations.