Commonfund offers wealth management solutions

When the Henry Ford foundation first provided a grant to create Wilton-based wealth management firm Commonfund, the not-for-profit counted 72 clients, and just over $63 million in managed funds. Today, the firm represents more than 1,400 universities, colleges, and non-profit foundations — managing a total sum of $25 billion, says Keith Luke, president of Commonfund Securities, the firm’s registered broker-dealer subsidiary.

Occupying a building on Old Danbury Road, Commonfund has provided wealth management and investment strategies for university endowments since 1972, when the Ford Foundation commissioned studies that showed a lack of clear financial planning from schools in the United States.

The problem in 1972, Mr. Luke said in an interview on Monday, was not a lack of investment of capital by colleges, but a relatively unsuccessful style.

“The foundation was worried that money was being mismanaged at higher education institutions. The nature of the investments people made was the problem,” he said. “[Colleges] figured all they would do is invest in bonds, because those were safe.”

A lack of diversity made this style of endowment management less than satisfactory, as judged by the Ford Foundation. The studies it had commissioned illustrated the need for an independent firm that specialized in the special needs and wants of not-for-profit institutions.

“There was a need for a professional management company,” in the higher education sector, Mr. Luke said. “With rising interest rates, bonds were losing money. These organizations needed to invest for total return — including investing in equities while moving away from fixed income investments.”

This dedication to fixed income investments, Mr. Luke said, greatly stemmed college endowment ability to treat each future generation of students as well as they had treated the previous generation.

“An endowment may contribute anywhere from 10% of a school’s operating cost at a small, independent school, to 40% at a school like Yale. This can grow with good investment, or with long-term capital commitment.”

“The generation of today,” he said, “should be treated just as the generation of tomorrow.”

If poor investment strategies slow the growth of an endowment below the rate of inflation, it becomes impossible for an organization to properly maintain institutional standards of excellence.

“You never want to spend all of it, but you have to spend some of it” to keep up with those standards, Mr. Luke said. Making sure their clients have the ability to supply their institutions with proper financial support is the overarching goal of the Commonfund organization.

Though the firm has certainly grown since 1972, Mr. Luke says that “fundamentally, the business hasn’t changed much.” In 1999, they expanded to offer management to general non-profit organizations as well as colleges and universities.

“We continue to manage across all aspects of the market,” Mr. Luke said. “Commonfund believes U.S. equities, and foreign equities, hedge funds, domestic bonds, and foreign bonds” are important aspects of a well-founded portfolio.

Stepping outside of publicly traded entities, Commonfund also uses venture capital investments, and investments into small and midsized businesses outside of the public market.

The firm’s understanding of the needs of not-for-profit organizations, and universities is essential to its continued success in its market, Mr. Luke said. Many wealth management companies can provide charities and institutions with valuable advice, he said, but few offer the same level of expertise as Commonfund.

“We know our clients so well, and we have an ability to understand how any investment will work within the context of an institution. We especially understand how it will relate to things like taxes, regulations, or board opinions,” he said.


Its employees’ dedication to the company’s mission creates an additional level of trust between itself and its clients.

“People like to work here,” he said. “If we are successful, and do a really good job at a college, then maybe they will have extra funds to provide for scholarships. If we do a really good job at a foundation, they will have extra money for the needy.”

Commonfund employees, Mr. Luke said, don’t simply work to increase wealth through smart investments. They believe in the organizations they support, and their clients own missions.

“We love our organizations, and we love what our organizations do,” he said. “Each one has a social objective, whether it be education, or promoting the arts.  We represent orchestras, arts institutions, museums, libraries, and even non-profit hospitals,” among others.

Because Commonfund and its employees are such strong supporters of their clients, they understand the need to conform investment strategies to any organization’s platform and desires.

“Institutional investors struggled” with keeping investments in line with their institutions mission “for a long time,” Mr. Luke said.

“For example,” he said, “Catholic organizations have very strict investment requirements and exclusions. One recent Catholic organization wanted to invest in a hedge fund without any influence from tobacoo equities,” he said.

Though “screening” an investment plan from one or two kinds of stocks — like “sin stocks” liquor and tobacco — is effective, many of Commonfund’s clients have had to compromise to receive the returns they are looking for.

As you apply more screens to investment possibilities, the “investment universe gets smaller and smaller,” Mr. Luke said. “One has to ask themselves, are you really fulfilling your goal to provide grants? Some have become willing to make investments in order to use the returns” for charitable reasons.

Lately, he said, a challenge for Commonfund has been a push by economic justice organizations encouraging universities to divest from the top 280 corporations in the United States.

Daniel Kessler, media campaign director for climate-change organizations, said his institution called this initiative “Do the Math,” after an article in Rolling Stone.

“Our idea is to get our universities — which control $400 billion in endowments — to divest from fossil fuel companies. We want them to say, ‘you no longer have a social license to pollute and destroy the climate.’”

A full list can be found online, but the organization’s campaign (which is modeled after the anti-apartheid movement at colleges in the 1980s) specifically names corporations such as Chevron, Exxon, and Shell as “destructive.”

For Mr. Luke, situations like these are what attracted him to the financial industry in the first place. The world will never be perfect for any investor, but those companies who survive hard times are poised for great expansion, he said.

“It’s an incredibly dynamic marketplace and a very exciting business,” he said. “The last five years have been hard — but sometimes helping others through tough times is more rewarding than times when the market is so good that everyone’s success in indistinguishable.”

“We are a company that stays transparent and helps you understand what is going on in the marketplace during dark times. We make sure we communicate broadly, and rapidly,” during those times.

A special aspect of the Ford Foundation’s initial $2.7-million investment into creating Commonfund, was the dedication of one-fifth of that capital into “raising overall awareness of college investment strategies,” through publication and training seminars, Mr. Luke said.

“Education is still core to our mission today,” he said. “A lot of our management fees go back into education, so colleges and organizations can better understand how to properly invest their capital.”