Investment Strategies: Funding a sports program through an endowment
Premise:
I was recently made treasurer of a college rugby club. My role this year is to invest and protect a $100,000-dollar endowment from team alumni and parents. The goal will be to invest the endowment, using the risk preferences of team officers, and alumni to gauge and allocate the investments. From there we will then siphon off the profit made every year to fund team exploits such as housing at tournaments across the country and travel to away games.
Factors I must take into account when investing and risking the endowment:
- Risk tolerance of the interested parties
- Parents and alumni who donated
- The current leadership group of captain, president, secretary and treasurer
- How much profit do we need for expenditures
- Travel to games
- Jerseys
- Housing at national tournaments
- Equipment
- Time frame of investment strategy
- Seniors in charge of the endowment graduate every year and are only in charge of the endowment for one year
- College players cannot day trade/always have their eye on the investments
Risk tolerance
Players in the leadership group tended towards riskier investments as the short-term payoff was a lot higher for those in the leadership group. Due to the fact that we were only in power for the next year this created a conflict of interest as the future leadership group of younger players would be heavily impacted if the riskier investments went sour as they would have to deal with the fallout. However, to invest in low risk 6-month treasury bonds at 1.41% yield[1] would only provide a $1,410 profit and would barely pay for a bus trip from DC to Virginia Tech. Bringing us onto expenditures.
Expenditures
In order to make the correct decisions to invest the 100k we must take into account the type of expenditures that will result from the profit of the endowment investment. The school provides the majority of money for player insurance and travel to conference games. Yet there are extra tournaments we have to pay for out of pocket. The average bus journey to an away tournament would average at $700 dollars for van rental, $800 for cheap accommodation so around $1500 for a tournament. And $2000 for a new set of jerseys a year. If we were to want to pay for one set of new jerseys and two ‘out of pocket tournaments’ we would be looking at needed to earn $5000 a year, at a 5% profit, therefore quite risky investments.
Time Frame
The investments would have to be realized and reinvested on a yearly basis as the old regime would want to spend the money on their year, and the next regime would want to reinvest the $100,000 (hopefully not less) in order to fund their actions for the next year. Therefore, all investments should start off with this outlook.
Conclusion
I found that the fairly high-risk tolerance and demand for medium expected returns would mean that the investment would be best kept in relatively market neutral stocks with long term prospects. I would avoid emerging markets and volatile stocks. I felt that choosing an index fund like the S&P 500, averaging at just under 10% would suffice my investment needs if we were to invest $50,000 in that and expect a $5,000-dollar return. I would then invest the remaining $50,000 in a bond such as The Bank of London and the Middle East offering a reactively safe 2% ($1,000) return[2]. This would hopefully ensure a safe financial future for the team and allow for important expenses to be covered for years to come.
[1] http://www.morningstar.com/bonds.html
[2] https://moneyfacts.co.uk/news/savings/6-of-the-best-one-year-bonds/