M E M O

TO:	Thomas L. Rhodes

cc: Michael Joyce

FROM:	Robert N. Berkopec

DATE:	December 11, 1995

RE:	Seminar Highlights

Enclosed for your information is a copy of the handout material from the 1995 National Summit on Endowment and Foundation Funds. It was a worthwhile seminar, with a grade of C+.

Enclosed is a "One Page summary" of some key ideas discussed at the seminar. Unfortunately the summary may be biased since it may include those items I thought important.

The seminar positively reinforced that the Bradley Foundation is moving in the right direction with respect to many investment initiatives instituted in recent years. On the other hand it also reinforced the need to "fine tune" certain procedures as follows:

1.	Asset allocation is the most important element in the foundation investment performance pyramid. The Bradley Foundation asset allocation policy has evolved over the years and was somewhat defined by Roger Hertog in early 1995. Fortunately the evolution to equities with higher volatility characteristics has been very beneficial in 1995. However, the current asset allocation policy is rather fluid and does not deal with rebalancing the portfolio, style allocation and risk factors to achieve a long range target

rate of return. I continue to believe that there is a need to more formalize the asset allocation policy and hiring an outside consultant to perform this service would be a prudent investment. I suspect that a consultant would provide constructive ideas and, if nothing else, would be an insurance policy that the Foundation is following sound investment practices.

2.	November 1995 will be another solid performance month and increase the equity asset allocation. I believe some portfolio rebalancing is needed now to adjust the portfolio to the Foundation's current target asset allocations and reduce the volatility of the portfolio characteristics. The amount of any rebalancing could be based on the November 30, 1995 Flashreport.

A more creative and aggressive approach would be to enter into put options as a form of insurance policy to protect against a market downturn or buy S&P futures. These would be dramatic initiatives and contrary to the historic policy of the Foundation and only applicable if one is anticipating a market downturn.

3.	In order to establish a target rate of return, there is a need to better define an agreed upon spending policy. Currently the Foundation does not have a defined long range spending policy. The long range grant budget exercise completed by the Foundation is a first step in better defining a spending policy. Elements of a spending policy would include such factors as:

a.	Spending could be based on a moving market value approach that preserves the economic value of the Foundation.

b.	Define minimum/maximum annual spending rate.

c.	Include return factor to build a stabilization reserve fund to insure a more uniform spending rate even in down years.

4.	Calendar year 1995 highlights the difficulty that active managers have to achieve the benchmark indices. You have previously raised the question if the Foundation should purchase index funds. I believe that a base level (say 10%) of index funds would be a prudent investment alternative. The index funds could be purchased to replicate the asset allocation of the portfolio. Advantages include:

a.	Lower transaction costs

b.	Lower risk and volatility

c.	Lower investment manager fees

d.	Benchmark performance data to evaluate active managers

5.	The Foundation does not have an overall investment policy. The investment objectives provided to each investment manager includes many of the elements of an investment policy. However, an umbrella investment policy to guide the overall investment direction of the Foundation does not exist. An effective investment policy is predicated on first developing asset allocation and spending policies.

A number of the above items have been discussed by the Investment Committee. The items were rejected or deferred because of lack of consensus, lack of time to discuss the issue or lack of information to make an intelligent decision. Now that the Investment Committee is focusing more on internal policy matters, the timing may be appropriate to once again address these issues.

Your thoughts and observations!

RNB/ye

Enclosure