What are the Special Funds?
Originally, these were investments funds for special diocesan accounts such as the Grisbaum Fund used to support seminarians, the Congregational Development Fund, and other specific bequests and land sales that have been made since the formation of this diocese.
Starting in the 1970’s these funds were opened to congregations and other diocesan entities for their investment purposes.
Investments in these funds are in compliance with the national canons of the Episcopal Church and diocesan canon 13, Section 1(a).
Are there investment choices?
Yes. There are two types of portfolios available:
- A growth fund designed for long-term capital appreciation.
- A balanced fund designed for balanced appreciation with an emphasis on regular and on-going income draws.
What constitutes the make-up of these portfolios?
These portfolios, as well as the diocesan Unrestricted Fund is divided into four asset classes: Stocks, Bonds, Cash, Other. (Other includes such things as Real Estate, Foreign Investments, Commodities, etc.) These classes are weighted in accordance with the purpose of the investment as noted above.
What are the holdings within these portfolios? What is the investment philosophy?
These two questions go hand in hand. The Investment and Finance Committee along with the diocesan investment manager, Justin Haskin of Grace Legacy Capital, determined several years ago that the most appropriate investment for the diocese was to invest in the broad market using index funds. The advantages of this approach are 1) spreading the holdings over the broad market reduces risks; 2) since index funds are defined by their current value, they are unmanaged keeping the costs low. In essence all those who are active in the market become the managers by their actions. The only costs associated with index funds are the fees charged to group these shares into various sectors.
And that leads to the holdings.
- There are over ten funds of domestic stocks representing groups of income and growth stocks in large, mid and small cap issues plus dividend portfolios. Includes foreign stock holding allocations (publicly traded, liquid exchange traded funds.)
- This includes both bonds and bond funds of differing durations and contains corporate grade, government bonds and convertible securities. All bond portfolios are investment grade – no high yield or “junk” at this time.
- Primarily real estate securities, known as REITs. Also allows for small holdings in commodities.
- Cash and equivalent cash securities.
How are these distributed within the two funds?
The distribution depends on the investment objective as defined above. The higher the equities (stocks, etc.), there is the potential for high returns, but, likewise, greater volatility. A portfolio with a large percentage of fixed income instruments (bonds, etc.) will produce a relatively steady stream of income, but without some opportunity to increase a portfolio’s capital value, the investment can easily fall behind the rate of inflation steadily diminishing its worth.
Before adopting the current portfolio for the Unrestricted Fund, The Investment and Finance Committee undertook a detailed study examining the risk/reward of certain portfolio makeups. The committee adopted a moderate approach which led to a broad division of securities into 60% equities and 40% fixed income instruments.
The growth fund mirrors the diocesan Unrestricted Fund in this 60%/40% division.
The balanced fund is just the opposite at 40%/60%. The same grouping of index funds exists in both funds, but in different allocations to meet the investment objective of each fund. The Investment and Finance Committee feels that to move out of this range can endanger the intended objectives of these two portfolios.
What are the investment fees?
Fees are based on 1) the cost of a specific index fund and 2) the management fee charged by Grace Legacy Capital for managing the entire diocesan investments in all funds, including all trading costs, custodial fees, and administration costs. The latter is based on the total value of the diocesan portfolios and since the majority of this is diocesan, the diocese DOES NOT charge congregations any management fees. The only congregational cost is that of the various index funds which are embedded in their fund structure with no additional fees required (similar to mutual funds).
How is the activity of an investment account tracked?
The diocese along with their accounting firm prepares quarterly reports. These reports show income earned, capital appreciation (gains/losses) along with additions to and withdrawals from the investment. The Investment and Finance Committee, which controls the investment policy, reviews all funds quarterly with the investment manager to monitor performance and determine if any changes should be made to asset allocations.
How may one set up a special fund account?
Forms may be obtained through the diocesan administrator or online from the diocesan website. The Treasurer or other members of the Investment and Finance Committee are available to advise applicants of the most appropriate portfolio. Often this means going to the church and meeting with their finance committee. Arrangements can also be made if the applicant would wish to talk with the investment manager.
An account within a fund may be established by completing a form and writing a check to the Diocese of Indianapolis. All cash transactions are funneled through the diocese. Principal invested starts earning interest the following month. Earnings will be credited to withdrawals made during the month since the settlement of all transactions take place at the end of the month even if a payment is made earlier. Withdrawals in excess of $50,000.00 require at least thirty days’ notice before being enacted. Earnings are posted monthly and distributed quarterly unless instructions to reinvest have been chosen. Activity statements are sent to investors quarterly.
At the end of 2016, there were 24 diocesan accounts invested in the Special Fund’s portfolios and 57 congregational accounts including Waycross accounts. The availability of these funds is one more example of how the diocese offers financial assistance to its constituents. In addition to the low-cost loan programs offered through both the Revolving Loan and Grant Fund and the low-cost capital loan program administered by Chase Bank, the diocese is able to provide these two investment portfolios at minimum fees and in accordance with best investment practices to our congregations and diocesan partners.