The competence center for charitable foundations “We believe that we can help foundations to achieve their financial targets.”

Why is Credit Suisse launching a dedicated investment solution for charitable foundations?

Daniel Imhof: The Foundations Mandate aims to strengthen Credit Suisse’s existing offering for Swiss-based, tax-exempt foundations. The introduction of this dedicated solution is in response to feedback from our clients, who are seeking a new wealth management strategy that is aligned with their values. Moreover, thanks to the bank’s long-standing commitment to the charitable foundation sector in Switzerland, as well as our wealth of experience and the expertise of our in-house specialists, we believe that we can help foundations to achieve their financial targets and deliver on their vision.

How can the Foundation Mandate support charitable foundations?

This unique product allows foundations to invest in a professionally designed solution that is tailored according to their individual interests, risk appetite, and return expectations. Responsible and diligent wealth management is a core task for any charitable foundation as it preserves the organization’s finances in order to enable funding further activities. In the past, Swiss charitable foundations have typically taken a more passive approach regarding wealth management. However, faced with more challenging and complex financial markets in recent years, there is an increasing awareness that a more active approach to financial matters may be preferable. In summary, foundations need an appropriate investment strategy – be it active or passive – to sustain their activities and maximize their impact.

What is the composition of a Foundations Mandate portfolio?

There are three portfolios available with different levels of risk, which is mainly determined by the equity quota. The portfolios are constructed around three distinct preferences/requirements that we have identified for this particular client segment: a focus on direct investments with a strong Swiss home bias, a steady dividend-generating component, and an environmental, social and governance (ESG) integration approach. This setup allows us to align the investment strategy with a foundation’s values and missions while also delivering upon its financial objectives.

What are the biggest investment mistakes that investors, including foundations, can make?

There are quite a few mistakes that investors can make – and foundations are no exception. One pitfall is not sticking to a defined investment strategy, known as the strategic asset allocation (SAA). The right SAA that fits a client’s risk profile can bring the peace of mind required to follow the course and stay invested. Clients are thus more likely to achieve their financial goals and be satisfied with their investment strategy over time.

Behavioral biases are another challenge when it comes to investing. These biases stem from the “hard-coding” in our brains that evolved over a long period. While this hard-coding kept us alive as hunters and gatherers, it is less helpful for survival in the modern financial world. Faced with a threat, our brains are programmed for flight, fight, or freeze. However, financial markets are unpredictable. Valuations, economic conditions, and other measures can provide a good indication of where the market might be heading, but there is never any certainty. Instead of trying to time investments, i.e. selling or buying at the exact right moment, investors should stay invested and make modest adjustments in order to ride out riskier periods.

The increased complexity of today’s financial markets poses another challenge. While many clients may be quite knowledgeable about financial markets, the world in which we live in today is extremely complex. Many investors find it difficult to keep up with the flood of information and understand what it means for their investments. This also holds true for foundation board members who act on a voluntary basis and may not always have the expertise or time to adequately assess and mitigate financial risks across all asset classes worldwide.

How can the new Foundations Mandate help avoid such mistakes?

A discretionary mandate provides foundations with access to a large network of professionals who collect, analyze, and act upon financial, political, economic, and scientific data on a constant basis. Importantly, discretionary mandates are run according to a very structured, disciplined, and strictly governed process. There are rigid team structures, policies, and processes in place to ensure investments are run in a consistent manner and to avoid behavioral biases. A lot of work goes into managing an investment portfolio and much of that work is carried out behind the scenes. It is a continuous cycle of decision making, implementation, and risk monitoring. In other words, it is a big commitment that should not be taken on lightly.