Tracklines & Waypoints

By the Investment Committee, USCGAAA

Reflecting back on the last four years on the Investment Committee, one thing is clear – there is a real story of continued year-over-year maturity in the organization. Maturity manifests in several ways, however, that of organizational capabilities is probably the most important. A Board-term in Review

In 2016, the size of the endowment at year end was approximately $28 million. As we near year end for 2020, the endowment is close to $39 million. This growth has been largely attributed to an aligned Investment Committee and Investment Advisor relationship – there is no day-trading, rather there is a long-term orientation and open line of communication about today and tomorrow. The tracklines we’ve been on and the waypoints we’ve been through have enabled the Alumni Association to execute its mission in a greater capacity. Instead of an annual proffer of $1 million to $2 million, the Association can now proffer $3 million to $5 million per year. This level of support enables the Academy to pursue big projects to make continuous improvements to execute its mission.

Voyage-Planning Considerations

To understand how the Association can provide this level of support year after year, it helps to understand how strategy is created and then executed. The graphic here highlights the organizational strategic execution flow for the Coast Guard Academy Alumni Association (and is generally applicable to any organization).

The vision and the mission of the Coast Guard Academy Alumni Association are set by the foundational charter for the 501(c)3 and are monitored for relevance by the President and the Association Board of Directors. The Organizational goals are set by the President and staff; the most recent rendition of this is the “Achieving More Together” strategic plan for the Coast Guard Academy Alumni Association 2020-2025. An important input that informed the strategic plan was the Coast Guard’s Strategic Vision for the Coast Guard Academy 2019-2023. Several objectives from each inform the Investment Committee’s actions in regard to the management of the endowment portfolio from the Academy’s goal to “Foster a Culture of Fiscal Sustainability” to the Association’s goal to “Maintain Financial Stability and Stewardship.” [You can view both strategic plans at www.cgaalumni.org/ Dec20.] Overall, the strategy informs the execution of not only operation, program and project management, but also the management of our endowment portfolio ensuring alignment across the organization and with the Coast Guard Academy. Setting Tracklines

All of the above counts as it informs the cycle of committee work currently in-process. Every five years, the Investment Committee revisits the Investment Policy Statement

in great detail to make relevant updates. And in the year following, the committee goes through an Investment Advisor selection process whereby it reviews approximately 30 Advisors (firms) who respond to the request for proposal (RFP).

The IPS Waypoint

The Investment Policy Statement is the document that reflects the vision, mission, and organizational goals of the Coast Guard Academy Alumni Association and importantly set strategic guidance for the long-term growth of the endowment. The three keys to that are spend, inflation, and risk. Since the last deep review in 2015 where the committee set an annual spend of 4%, the market observed a 1.77% inflation, thus creating a hurdle rate of 5.77% to generate longterm growth – the endowment grew at an average rate of 7.7% over that time horizon.

This year, as the committee thinks about strategic alignment to the broader goal to become a more racial and gender equitable organization, the Investment Committee is updating its Investment Policy Statement to include a statement about Environment, Social, and Governance (ESG) integration. The committee will begin a multiyear process to evaluate and consider including investment managers in the Portfolio that actively incorporate ESG factors into their investment decision making.

ESG used to be synonymous with sacrificing returns for “feel good” investments – that is not the case anymore – it is not only possible to do good and do well, it is becoming the standard. In fact, a 2018 survey conducted by the U.S. Forum for Sustainable and Responsible Investments found of “educational institutions surveyed, which included Harvard University, the University of Michigan and Northwestern University, held $317 billion in ESG assets at the start of 2018, 8.2% higher than in 2016.” This matters because our philosophical underpinnings for investing are modernizing to reflect aligned organizational (Association, Academy, and Service) beliefs. The Coast Guard Academy Alumni Association will be a leader among sister institutions as it will be the first to have ESG language incorporated into its investment policy statement.

This will be a long process that will begin with training and education for the entire Board. It will also involve establishing measures to track our portfolio’s progress over time as we move toward greater ESG integration. The committee will not immediately unwind positions that might show as unfavorable by one measurement standard bearer or another. Rather it will maintain a long-term view that the Investment Committee should not be a tactician to the Investment Advisor, but rather allow the portfolio to evolve over time thoughtfully and in alignment with our strategy and expectations.

The RFP Waypoint

Next year the Committee launches the year-long review of our Investment Advisor, which happens every five years. In 2010, Goldman Sachs was awarded the inaugural business when the endowment was approximately $18 million. In 2016, after a review of 30 Investment Advisors, Goldman Sachs was selected again. By year-end 2021, the Association will announce the outcome of the review.

Where We’re Headed Next

While the Investment Committee, which enacts governance over the endowment, is only one part of the Alumni Association Board it is an important part as its maturity enables greater support to the Academy with a direct impact on mission effectiveness. The committee continues to professionalize year-over-year by adding a thoughtful mix of perspectives and expertise from both voting and non-voting (at-large) members. There is an evolving tone that is orienting on how and when the endowment reaches $100 million, what it will take to get there and what we can do once we’re there. And we’re near complete with setting the tracklines to that next waypoint.

The Association’s Investment Committee members include Board Members, CAPT Charlene Downey ‘93, CDR Francis Genco ‘88, CDR Mark Harris ‘96, CAPT Wayne Hollingsworth ‘76, Dion Nicely ’01, Kerry Watterson ’78, Chris Woods ’09 and At-large Members Lee Rosenbaum ’94, and Marc Benson ’07.