D.C. area Jewish federation revises investment rules
Friday, January 8, 2010
The Jewish Federation of Greater Washington's endowment fund, which lost $4.35 million to financier Bernard Madoff's Ponzi scheme, has changed its operating procedures to prevent such losses in the future, according to its leadership.
Policy changes for the federation's United Jewish Endowment Fund include term limits for the volunteers who help manage the money; a requirement that at least one-third of investment committee members have professional financial expertise; and the assignment of a staff member to monitor compliance with the rules.
Local organizations affected by Madoff's scheme include the Jewish Community Center of Greater Washington, which reduced staff hours during the past year after losing more than $400,000 in the endowment fund.
Madoff pleaded guilty last year to bilking billions from investors, many of them Jews.
Overall, Washington area investors did not lose as much as counterparts in some other cities, such as New York, and the recession has had a bigger impact on organizations here. But Madoff's fraud hurt some of the federation's major donors and made others skeptical that their money would be invested wisely.
"For us, Madoff was a very tiny portion of what really impacted us. More of an impact came from some of the people in the community that lost significant funds because of Madoff," said Misha Galperin, executive vice president and chief executive of the Jewish Federation of Greater Washington.
Jonathan Sarna, a professor at Brandeis University in Massachusetts, estimated that Jewish philanthropy declined last year by 25 to 30 percent.
Many foundations are scrutinizing their investment practices more closely, said Andrew Hahn, professor and director of the Sillerman Center for the Advancement of Philanthropy at Brandeis.
"Obviously a mistake was made, and that was very unfortunate," said David Butler, president of the endowment. "In hindsight, everyone looking back saw all the red flags."
The endowment had $9.35 million invested with Madoff, but its risk was limited by a rule that prohibited turning over more than 10 percent of its assets to any one fund manager. In keeping with that rule, the endowment withdrew $4.5 million over four years as returns on its investment soared -- at least on paper.
That was a difficult decision at the time, but it prevented greater losses.
"To some people, at the point when it happened, it seemed like a crazy thing to do. 'Here's the one investment making money,' " Galperin said. "Because we had this policy in place, it had to be followed. That showed the value of these policies."
The endowment's total value today is about $111 million.
The changes adopted by the endowment were recommended by a committee that studied the issue. The new policies include detailed descriptions of the responsibilities of committee members, investment advisers, auditors and others. The guidelines are particularly important because many important decisions are made by volunteers, Galperin said.
Years ago, few people on the investment committee had professional experience, Galperin said, and some members served for many years. Now the fund has training requirements, term limits and a slightly smaller board, so leaders hope members will be more engaged.
"We were deceived and victimized, as were many others," Galperin said. "You can't eliminate that possibility altogether, but you can put more stringent policies in place to lessen the likelihood."