August 26, 2025 • 17 mins
Hear from Tanya Suba-Tang and Bahman Mirzaee as they discuss the current challenges and opportunities facing endowments and foundations within the investment landscape. Mirzaee, in his capacity as a principal at Mercer, delineates the various types of organizations that fall under the purview of endowment and foundation management, including educational institutions, private and corporate foundations, and cultural organizations such as museums. He emphasizes the fiduciary responsibilities these entities hold regarding the management of assets derived from donations, grants, and other financial contributions, elucidating the critical role they play in ensuring the sustainability of their respective missions.
As the conversation unfolds, Mirzaee introduces the three primary ways in which Mercer supports its clients: through Outsourced Chief Investment Officer (OCIO) services, advisory roles, and direct investment assistance. The OCIO model, in particular, stands out as a rapidly expanding service that allows organizations to share fiduciary duties with Mercer, thereby enhancing their investment capacity while benefiting from the expertise and resources that Mercer brings to the table. Mirzaee articulates how this collaborative approach not only alleviates the burden on organizations with limited internal investment capabilities but also fosters a deeper understanding of their unique investment needs, particularly in a landscape characterized by increasing market volatility.
Transitioning to the contemporary challenges that endowments and foundations face, Mirzaee provides a thorough analysis of the macroeconomic factors influencing investment strategies. He discusses the repercussions of shifting interest rates, demographic trends, and legislative changes that affect funding structures for educational institutions and other nonprofits. Notably, Mirzaee highlights the impending demographic cliff, projecting a significant decline in the number of graduating high school seniors, which poses a substantial risk to the enrollment and funding stability of many educational organizations. Furthermore, he addresses the impact of recent tax reforms on charitable giving, noting that changes to the deductibility of donations could influence donor behavior and subsequently alter the financial landscape for nonprofits. Through this comprehensive discourse, Mirzaee underscores the complexities of navigating the investment landscape for endowments and foundations, ultimately providing valuable insights into the strategies that may be employed to mitigate these challenges and capitalize on emerging opportunities.
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Episode Transcript
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(00:05):
Hello and welcome to FinancialPerspectives, a CFA Society San Francisco
podcast where we interview anddiscuss trends with leaders from
across the investment andfinance industry. This month, our
host, Tanya Suba-Tang,membership director with CFA Society
San Francisco, had thepleasure of speaking with Bahman
Mirzaee, principal andEndowments and Foundation segment
(00:27):
leader at Mercer. Listen in asthey discuss trends and challenges
in the Endowment andFoundation space.
Bahman, it's so great to seeyou today. Thank you so much for
joining me.
Great to be here. Tanya,thanks for hosting. Appreciate seeing
me.
Absolutely. And I just wantedto say that you are my lucky first
(00:51):
feature episode on season six.So you are our star opener this season.
Okay. That's a lot ofpressure. Do my best to deliver so
the rest of the season can getbetter from here.
Oh, well, I, I think you'rejust fine. And we're going to be
talking something sointeresting and I don't think we
actually really talked aboutthis topic in our podcast in our
whole five seasons. So I'mreally thrilled to have you and kind
(01:13):
of diving into this. So forall our listeners. Faman is a principal,
endowment and foundation atMercer, so I would love for you to
kind of set the tone for ourlisteners. Can you kind of share
a little of what are sometypes of organizations that work
with in your position?
Sure. I think the "who" isprobably the most interesting part
(01:33):
of what my team does and wesupport a wide range of organizations
and to meet their investmentneeds. So in the educational segment
alone, think about educationalservices, K through 12 schools, community
colleges, higher education,and the list just compounds from
there. There are privatefoundations, corporate foundations,
(01:54):
religious organizations are amajor part of our client set. Then
there's community found.Another fun segment is museums. Membership
organizations. I think aboutlike law groups or affiliation groups,
like geologists or somethingto that sort. There are way too many
to name, but I would wagerthat nobody listening today has not
(02:16):
interacted or at leastbenefited from the services of some
nonprofit in their ecosystem.
That's a very greatdescription. I think a lot of the
times our listeners might hearendowments of foundations and not
necessarily know what thatentails. So how does Mercer and your
team specifically work withthese specific endowments and foundations?
Sure, in its simplest form,endowments, foundations have assets
(02:37):
that they have fiduciaryresponsibility over. So these things
come from donations, grants,gifts, anything that's been given
to them to support theirmission, whatever that mission might
be. And what generally happensis this takes the form of like a
long term pool. And my team isdedicated solely to just Servicing
and helping these types ofclients. And we work with endowments
(03:00):
and foundations in primarilythree ways. One is ocio, which is
outsourced chief investmentofficer services. One is advisory,
and the last one is kind ofinvestments or like direct investments,
help with them.
You mentioned OCIO for me andof course for our listeners. What
is that exactly and how doesthat work?
Oh sure, yeah, we loveacronyms and financial services.
(03:24):
I'm sure the podcast listenersare very familiar with that. But
let me go through all threeservices. So one I mentioned was
investments. So imagine ifyou're an organization and you have
this long term pool and youhave a very specific need and you
come to us and say, you know,we'd love your help in identifying
a large cap value manager, orwe'd love for you to set up and build
(03:45):
out our private equity sleevefor us. So that's one specific silo.
The next one is we have, youknow, our internal investment staff
and we'd love for you to comein and give us advice, set up advisory
and we come in and give youour best advice and you either implement
it or don't. But theresponsibility is on the client.
Now the fastest growingsegment and by far the most interesting
(04:07):
is what we call outsourcechief investment officer services.
This is where us and theclient share the fiduciary responsibility
and the investments aredelegated to Mercer. So in an OCR
relationship, we act as anextension of your staff. This includes
revising and setting up aninvestment policy statement, figuring
out your spending needs,building out a portfolio, trading
(04:29):
management searches,rebalancing, building out private
markets solution for you, anda massive amount of other services
and support that we offer. SoI should also note that in many of
these cases, especially inOCIO capacities, an organization
might retain their investmentcommittee. So let's say you're a
big community foundation andyou have your volunteers, and your
volunteers, a subset of themwill form an investment committee
(04:52):
and that investment committeewill then help us make decisions
and be part of the solutiongoing forward. So just because you
engage in an OCIO is no meansa reflection of the sophistication
and talent of theorganization. We have various goals,
specifically in the K through12 segments that, you know, parents
are involved, that areincredibly sophisticated buyers,
(05:13):
I would say in this space. So,and then, then the delegation also
varies slightly. So forexample, you can say, look, we are
hiring you as an outsourcedchief investment officer service.
That is your job and our jobis to hold you accountable. And then
this also evolve to say, look,we really like to collaborate and
we like for this to be more ofa partnership. So we meet you where
you're at. Generally, a storyto kind of help illustrate how this
(05:35):
works in practice is we had aclient approach us in the Bay Area
and this individual spent 20years at this organization acting
as their chief investmentofficer. And he did a wonderful job.
However, after 20 years, it'stime to retire and we're not immune
to any of the demographicissues happening in the world. So
the committee went out and dida search and they weren't able to
(05:57):
find anybody that fit theprofile, the characteristics that
they wanted. So they came tous and said, here is our investment
thesis. Here's our pool ofassets. Would you act as our ocio?
And obviously we said yes, andwe helped them get set up. And then
the last thing I'll mention, Iapologize for going on for a little
bit too long on this, but it'sreally an important and growing part
of the investment industry isan understated benefit of hiring
(06:21):
an OCIO is a lot of theseorganizations are staffed by volunteers.
So think about a parent or aCFO or somebody on a board of a museum.
They're really there tovolunteer their time because they
care about the mission or theycare about the organization. But
at some point they might peeloff or retire or move on to another
organization. And what a lotof the folks on my team do, and they
(06:43):
do it extremely well, is actas a pseudo historian for the organization.
They come in and somebody, youonboard, a new board member, and
they say, like, how do we gethere? What's going on? What have
we tried? And you have thatconsistent relationship. And some
of our clients have been withus for 15, 20 plus years and we're
able to bring thatperspective. Here's how you got here.
Here's what donations looklike, here's what the growth of the
(07:04):
portfolio has. Here's why theportfolio constructed in a certain
manner. So a lot of fun stuffin our, in our space.
Wow, that's fantastic. Thankyou so much for sharing that. Now
I think everyone's probablyvery interested. You know, things
were said earlier this yearand so would really love to kind
of get your thoughts on sometrends, challenges and investment
(07:24):
themes in the endowments andfoundation space.
Yeah, and I think this is thegenesis of our entire conversation
was I was mentioning some ofthe things happening earlier this
year in our space and yousaid, let's, let's talk about it.
And I will tell you, it hasbeen fascinating. We have never created
and trashed so much researchas we have in the last 12 months
(07:45):
because of all the changes. Soon top of the other headline news
that your listeners are I'msure familiar with, our clients specifically
had had to deal with a wholehost of other issues and challenges.
But let's start withinvestments because this is a CFA
podcast. So let's, let's startwith the fun stuff first. One of
the things that's come upconsistently is the endowment model
or the Yale model, which I'msure your listeners are familiar
(08:08):
with. And the way we describethe portfolios that we build are
their perpetuity portfolios.They are supposed to outlast all
of us, anybody at the desk,anybody bored anywhere else. Now,
what Yale did very early onwas they diversified out of common
stocks and bonds and theystarted investing in asset classes
like private equity, venturehedge funds. And the story is well
(08:30):
told, so I won't repeat ithere, but that success came a lot
of imitation. Now the questionhas become with the changing interest
rate environment and all thechanges and the growth in the private
markets, is the, is the modelstill valid? Now, on the surface
level, since these portfoliosare meant to last forever, you could
say absolutely. You could takeon a liquidity risk and you could
(08:50):
reap some of the benefits. Andthat's how it should work. Most people
thought they could just copyand paste a portfolio over. And there
was this wonderful article inthe Financial Times recently where
they talked about the Yalemodel, the endowment model, and they
said what most people miss isthere were two other factors in play
and I tend to fall into thiscamp as well. One was access to investment
talent and the other wasaccess to long term relationships
(09:14):
with your investmentproviders. And that's essentially
what we do here, is thatinvestments aren't meant to be easy
and you can't just copy andpaste and diversify out. So that's
what we at Mercer try to bringto our clients is we have these long
standing relationship withasset managers. We know what they
do, we know what theirpipeline looks like and where they
excel. And that's really whatwe try to bring to our clients now
(09:38):
in regards to challenges andthemes, this year has seen a whole
host of macro challenges tononprofits. So the one item was the
passage of the big beautifulbill, which was in the news and this
was pre our discussion. So alot of that has been resolved now.
And the way to best describeit is imagine yourself as the CIO
or the president of a majorresearch university. Right now you
(10:01):
have grants that arepotentially in hundreds of Millions
of dollars that has eitherbeen funded, frozen, or canceled
or held up in court. You havechanges to visas and a crackdown.
International studentenrollment. So the average student
enrollment, by the way,international Enrollment is about
6% across the country. But atresearch universities, that could
be as high as 20%.
(10:21):
Oh, wow.
So it's, it's quite a bignumber. So if those, if those numbers
come down, it's a big deal forthose large research universities.
And then there was already a1.4% tax on private institutions
with at least 3,000 studentswith an endowment of 500 to 750k
per student. Now, what'schanged in the bill is that they've
(10:42):
added tiers just like we, youand I, are subject to a progressive
tax. These institutions aregoing to be, I guess, opened up to
a progressive tax of sorts nowas your endowment increases. So let's
say you're at the 750 to $1million per student. Your tax increase
to about 4%. If you have over$2 million per student, your tax
can go all the way up to 8%.Now, obviously there's only a handful
(11:05):
of large institutions that areblessed with those types of numbers,
but it is a change. And thenthere's a whole host of other things
in the education space. Sothat includes reduction in federal
student aid, reduction in theparent plus loans, elimination of
the grad grad plus loans andlimitations, and changes to the loan
repayment options that peoplehave. Now, on top of all this, there
(11:27):
is now a new requirement alsofor schools to pass on an earnings
test that they have to evenget access to the federal student
loans. And then there is theindirect effect which we have yet
to feel, which is if there arecuts to Medicaid and SNAP programs
at the state level, the statelegislature might have to make some
decisions on education, whichmeans that if they choose to fund
(11:51):
Medicare and snap, they mightactually pull back from spending
on the educational portions oftheir budgets. So if you are again
ahead of a major university,it's been a very, very tough year
for you. One of the othertopics that I kind of want to bring
up was this other trend ineducation more broadly. There is
what we call this demographiccliff happening across the US and
(12:15):
we all have had discussionsabout this, right? You've seen the
birth rates around the world,and the US Is by no means immune
to any of this. So what we'reprojecting is a decline of 13% in
graduating high school seniorsin the US over the next 15 years.
Now, that's, that's a bigPipeline for these universities.
Obviously there's variationacross the U.S. for example, in California,
(12:37):
it could be as high as 29%fewer graduating high school seniors.
So if you are an educationalinstitution, these are things that
are incredibly top of mind foryou. And then the second order effects
obviously is what if you're acollege town, those students that
come into school, they, theysupport your local ecosystem, they
might stay and start companiesand things of that nature. And then
(12:58):
I know I've gone a little bittoo deep on the education side, but
just high level other itemsthat we're keeping an eye on. Obviously
inflation is a big deal andeverybody has been feeling it. We're
getting the same feedback fromour clients. If you're a food bank,
a homeless shelter, or youprovide free medical clinic care,
you're, you're being, you'rebeing stretched a little bit then
(13:19):
these days. And then charitiesthat support causes overseas have
been hit hard by the closurein usaid. And then there's also challenges
for any organizations that areproviding any type of immigrant population
with any type of support. NowI wanted to make sure you don't have
any questions before. There'sa whole other host of other things
that are challenging on thegiving side, which is a big deal
(13:40):
for our clients. So on thegiving side, there's two things I'd
like to really highlight. Andby giving, I mean you and I and everybody
else in the US givingdonations out to these organizations
that we still care about. Sonow there was a change in the big
beautiful bill about apermanent charitable deduction for
non itemizers. So around, youknow, when we go to file our taxes,
(14:02):
around tax time in February,March, April, time frame, you can
either choose to itemize ortake the standard deduction. If you
took the standard deduction,your charitable giving wasn't impacted
as much. But if you itemize,you can obviously deduct those. So
what's changed is around 85%of the population chooses their standard
deduction, which might changewith the SALT reforms that we also
(14:22):
saw. But the beauty of this isnow for a standard deduction, you
now get 1,000 for single and2,000 for married filed jointly,
where you can deduct thatgiving to your favorite organization,
which could be a game changerfor a lot of organizations that rely
on smaller donations.
Yeah.
There's also a change on thecorporate side. There's now a 1%
(14:44):
floor on corporatecontributions to charity, meaning
that you won't get acharitable deduction until donations
exceed 1% of your taxableincome. And we project that that
might impact philanthropicgiving by corporations by about 10%.
Now, on the positive side,America has a very rich and proud
tradition of giving. I knowthat you have listeners all over
(15:05):
the globe, but there's alsothis massive trend of baby boomers
retiring. The wealth transferand charitable causes will get some
tailwinds and support fromthose changes. Additionally, you
know, a strong economy, strongstock market, they really lend themselves
to individuals making largedonations to these types of organizations.
(15:27):
So those are some of thepositives, negatives, challenges
and trends that are going onin our space.
Oh my gosh, Bahman, that's alot to take in. But you know, a lot
is happening. And thank you somuch for sharing this because a lot
of positive, a little bit ofnegative, a lot of things that we
got to look forward to. Butyou know, I don't think anybody else
kind of really understood theextent of these changes and how they're
(15:47):
impacting in so many things.So thank you so much for sharing
your insights. I think I'velearned a lot and our listeners learned
a lot.
Thank you Tanya for having us.Like I said, we work closely with
our clients to make sure theyunderstand how these changes will
impact them and we're happy tocome back and talk to you as needed.
Oh, that would be fantastic.I'd love to have you back and see,
you know, maybe in a year.Let's see where we are, right?
(16:07):
That sounds great. Thanks for hosting.
Thank you.
Thank you to this month'sguest, Bahman Mirzaee for your thought
provoking insights. I'm surethe many tips you've shared will
have a lasting impact on notonly mine, but our listeners perspective
on endowments and foundations.Join us next time for another Financial
(16:31):
Perspectives episode airing onthe last Tuesday of the month. Make
sure to send in a message tothe show by emailing podcast@cfa-sf.org.
we'd love to hear what youthought of this episode or any suggestions
you have on future topics thatyou'd like for us to cover. Thank
you for being a dedicatedlistener. This podcast is produced
(16:59):
by CFA Society San Francisco,a not for profit podcast professional
association providingprofessional learning and career
resources to over 13,000investment industry professionals
worldwide. To learn more aboutCFA Society San Francisco, visit
our website at cfa-sf.org orconnect with us on LinkedIn.
Hello and welcome to FinancialPerspectives, a CFA Society San Francisco
podcast where we interview anddiscuss trends with leaders from
across the investment andfinance industry. This month, our
host, Tanya Suba-Tang,membership director with CFA Society
San Francisco, had thepleasure of speaking with Bahman
Mirzaee, principal andEndowments and Foundation segment
(00:27):
leader at Mercer. Listen in asthey discuss trends and challenges
in the Endowment andFoundation space.
Bahman, it's so great to seeyou today. Thank you so much for
joining me.
Great to be here. Tanya,thanks for hosting. Appreciate seeing
me.
Absolutely. And I just wantedto say that you are my lucky first
(00:51):
feature episode on season six.So you are our star opener this season.
Okay. That's a lot ofpressure. Do my best to deliver so
the rest of the season can getbetter from here.
Oh, well, I, I think you'rejust fine. And we're going to be
talking something sointeresting and I don't think we
actually really talked aboutthis topic in our podcast in our
whole five seasons. So I'mreally thrilled to have you and kind
(01:13):
of diving into this. So forall our listeners. Faman is a principal,
endowment and foundation atMercer, so I would love for you to
kind of set the tone for ourlisteners. Can you kind of share
a little of what are sometypes of organizations that work
with in your position?
Sure. I think the "who" isprobably the most interesting part
(01:33):
of what my team does and wesupport a wide range of organizations
and to meet their investmentneeds. So in the educational segment
alone, think about educationalservices, K through 12 schools, community
colleges, higher education,and the list just compounds from
there. There are privatefoundations, corporate foundations,
(01:54):
religious organizations are amajor part of our client set. Then
there's community found.Another fun segment is museums. Membership
organizations. I think aboutlike law groups or affiliation groups,
like geologists or somethingto that sort. There are way too many
to name, but I would wagerthat nobody listening today has not
(02:16):
interacted or at leastbenefited from the services of some
nonprofit in their ecosystem.
That's a very greatdescription. I think a lot of the
times our listeners might hearendowments of foundations and not
necessarily know what thatentails. So how does Mercer and your
team specifically work withthese specific endowments and foundations?
Sure, in its simplest form,endowments, foundations have assets
(02:37):
that they have fiduciaryresponsibility over. So these things
come from donations, grants,gifts, anything that's been given
to them to support theirmission, whatever that mission might
be. And what generally happensis this takes the form of like a
long term pool. And my team isdedicated solely to just Servicing
and helping these types ofclients. And we work with endowments
(03:00):
and foundations in primarilythree ways. One is ocio, which is
outsourced chief investmentofficer services. One is advisory,
and the last one is kind ofinvestments or like direct investments,
help with them.
You mentioned OCIO for me andof course for our listeners. What
is that exactly and how doesthat work?
Oh sure, yeah, we loveacronyms and financial services.
(03:24):
I'm sure the podcast listenersare very familiar with that. But
let me go through all threeservices. So one I mentioned was
investments. So imagine ifyou're an organization and you have
this long term pool and youhave a very specific need and you
come to us and say, you know,we'd love your help in identifying
a large cap value manager, orwe'd love for you to set up and build
(03:45):
out our private equity sleevefor us. So that's one specific silo.
The next one is we have, youknow, our internal investment staff
and we'd love for you to comein and give us advice, set up advisory
and we come in and give youour best advice and you either implement
it or don't. But theresponsibility is on the client.
Now the fastest growingsegment and by far the most interesting
(04:07):
is what we call outsourcechief investment officer services.
This is where us and theclient share the fiduciary responsibility
and the investments aredelegated to Mercer. So in an OCR
relationship, we act as anextension of your staff. This includes
revising and setting up aninvestment policy statement, figuring
out your spending needs,building out a portfolio, trading
(04:29):
management searches,rebalancing, building out private
markets solution for you, anda massive amount of other services
and support that we offer. SoI should also note that in many of
these cases, especially inOCIO capacities, an organization
might retain their investmentcommittee. So let's say you're a
big community foundation andyou have your volunteers, and your
volunteers, a subset of themwill form an investment committee
(04:52):
and that investment committeewill then help us make decisions
and be part of the solutiongoing forward. So just because you
engage in an OCIO is no meansa reflection of the sophistication
and talent of theorganization. We have various goals,
specifically in the K through12 segments that, you know, parents
are involved, that areincredibly sophisticated buyers,
(05:13):
I would say in this space. So,and then, then the delegation also
varies slightly. So forexample, you can say, look, we are
hiring you as an outsourcedchief investment officer service.
That is your job and our jobis to hold you accountable. And then
this also evolve to say, look,we really like to collaborate and
we like for this to be more ofa partnership. So we meet you where
you're at. Generally, a storyto kind of help illustrate how this
(05:35):
works in practice is we had aclient approach us in the Bay Area
and this individual spent 20years at this organization acting
as their chief investmentofficer. And he did a wonderful job.
However, after 20 years, it'stime to retire and we're not immune
to any of the demographicissues happening in the world. So
the committee went out and dida search and they weren't able to
(05:57):
find anybody that fit theprofile, the characteristics that
they wanted. So they came tous and said, here is our investment
thesis. Here's our pool ofassets. Would you act as our ocio?
And obviously we said yes, andwe helped them get set up. And then
the last thing I'll mention, Iapologize for going on for a little
bit too long on this, but it'sreally an important and growing part
of the investment industry isan understated benefit of hiring
(06:21):
an OCIO is a lot of theseorganizations are staffed by volunteers.
So think about a parent or aCFO or somebody on a board of a museum.
They're really there tovolunteer their time because they
care about the mission or theycare about the organization. But
at some point they might peeloff or retire or move on to another
organization. And what a lotof the folks on my team do, and they
(06:43):
do it extremely well, is actas a pseudo historian for the organization.
They come in and somebody, youonboard, a new board member, and
they say, like, how do we gethere? What's going on? What have
we tried? And you have thatconsistent relationship. And some
of our clients have been withus for 15, 20 plus years and we're
able to bring thatperspective. Here's how you got here.
Here's what donations looklike, here's what the growth of the
(07:04):
portfolio has. Here's why theportfolio constructed in a certain
manner. So a lot of fun stuffin our, in our space.
Wow, that's fantastic. Thankyou so much for sharing that. Now
I think everyone's probablyvery interested. You know, things
were said earlier this yearand so would really love to kind
of get your thoughts on sometrends, challenges and investment
(07:24):
themes in the endowments andfoundation space.
Yeah, and I think this is thegenesis of our entire conversation
was I was mentioning some ofthe things happening earlier this
year in our space and yousaid, let's, let's talk about it.
And I will tell you, it hasbeen fascinating. We have never created
and trashed so much researchas we have in the last 12 months
(07:45):
because of all the changes. Soon top of the other headline news
that your listeners are I'msure familiar with, our clients specifically
had had to deal with a wholehost of other issues and challenges.
But let's start withinvestments because this is a CFA
podcast. So let's, let's startwith the fun stuff first. One of
the things that's come upconsistently is the endowment model
or the Yale model, which I'msure your listeners are familiar
(08:08):
with. And the way we describethe portfolios that we build are
their perpetuity portfolios.They are supposed to outlast all
of us, anybody at the desk,anybody bored anywhere else. Now,
what Yale did very early onwas they diversified out of common
stocks and bonds and theystarted investing in asset classes
like private equity, venturehedge funds. And the story is well
(08:30):
told, so I won't repeat ithere, but that success came a lot
of imitation. Now the questionhas become with the changing interest
rate environment and all thechanges and the growth in the private
markets, is the, is the modelstill valid? Now, on the surface
level, since these portfoliosare meant to last forever, you could
say absolutely. You could takeon a liquidity risk and you could
(08:50):
reap some of the benefits. Andthat's how it should work. Most people
thought they could just copyand paste a portfolio over. And there
was this wonderful article inthe Financial Times recently where
they talked about the Yalemodel, the endowment model, and they
said what most people miss isthere were two other factors in play
and I tend to fall into thiscamp as well. One was access to investment
talent and the other wasaccess to long term relationships
(09:14):
with your investmentproviders. And that's essentially
what we do here, is thatinvestments aren't meant to be easy
and you can't just copy andpaste and diversify out. So that's
what we at Mercer try to bringto our clients is we have these long
standing relationship withasset managers. We know what they
do, we know what theirpipeline looks like and where they
excel. And that's really whatwe try to bring to our clients now
(09:38):
in regards to challenges andthemes, this year has seen a whole
host of macro challenges tononprofits. So the one item was the
passage of the big beautifulbill, which was in the news and this
was pre our discussion. So alot of that has been resolved now.
And the way to best describeit is imagine yourself as the CIO
or the president of a majorresearch university. Right now you
(10:01):
have grants that arepotentially in hundreds of Millions
of dollars that has eitherbeen funded, frozen, or canceled
or held up in court. You havechanges to visas and a crackdown.
International studentenrollment. So the average student
enrollment, by the way,international Enrollment is about
6% across the country. But atresearch universities, that could
be as high as 20%.
(10:21):
Oh, wow.
So it's, it's quite a bignumber. So if those, if those numbers
come down, it's a big deal forthose large research universities.
And then there was already a1.4% tax on private institutions
with at least 3,000 studentswith an endowment of 500 to 750k
per student. Now, what'schanged in the bill is that they've
(10:42):
added tiers just like we, youand I, are subject to a progressive
tax. These institutions aregoing to be, I guess, opened up to
a progressive tax of sorts nowas your endowment increases. So let's
say you're at the 750 to $1million per student. Your tax increase
to about 4%. If you have over$2 million per student, your tax
can go all the way up to 8%.Now, obviously there's only a handful
(11:05):
of large institutions that areblessed with those types of numbers,
but it is a change. And thenthere's a whole host of other things
in the education space. Sothat includes reduction in federal
student aid, reduction in theparent plus loans, elimination of
the grad grad plus loans andlimitations, and changes to the loan
repayment options that peoplehave. Now, on top of all this, there
(11:27):
is now a new requirement alsofor schools to pass on an earnings
test that they have to evenget access to the federal student
loans. And then there is theindirect effect which we have yet
to feel, which is if there arecuts to Medicaid and SNAP programs
at the state level, the statelegislature might have to make some
decisions on education, whichmeans that if they choose to fund
(11:51):
Medicare and snap, they mightactually pull back from spending
on the educational portions oftheir budgets. So if you are again
ahead of a major university,it's been a very, very tough year
for you. One of the othertopics that I kind of want to bring
up was this other trend ineducation more broadly. There is
what we call this demographiccliff happening across the US and
(12:15):
we all have had discussionsabout this, right? You've seen the
birth rates around the world,and the US Is by no means immune
to any of this. So what we'reprojecting is a decline of 13% in
graduating high school seniorsin the US over the next 15 years.
Now, that's, that's a bigPipeline for these universities.
Obviously there's variationacross the U.S. for example, in California,
(12:37):
it could be as high as 29%fewer graduating high school seniors.
So if you are an educationalinstitution, these are things that
are incredibly top of mind foryou. And then the second order effects
obviously is what if you're acollege town, those students that
come into school, they, theysupport your local ecosystem, they
might stay and start companiesand things of that nature. And then
(12:58):
I know I've gone a little bittoo deep on the education side, but
just high level other itemsthat we're keeping an eye on. Obviously
inflation is a big deal andeverybody has been feeling it. We're
getting the same feedback fromour clients. If you're a food bank,
a homeless shelter, or youprovide free medical clinic care,
you're, you're being, you'rebeing stretched a little bit then
(13:19):
these days. And then charitiesthat support causes overseas have
been hit hard by the closurein usaid. And then there's also challenges
for any organizations that areproviding any type of immigrant population
with any type of support. NowI wanted to make sure you don't have
any questions before. There'sa whole other host of other things
that are challenging on thegiving side, which is a big deal
(13:40):
for our clients. So on thegiving side, there's two things I'd
like to really highlight. Andby giving, I mean you and I and everybody
else in the US givingdonations out to these organizations
that we still care about. Sonow there was a change in the big
beautiful bill about apermanent charitable deduction for
non itemizers. So around, youknow, when we go to file our taxes,
(14:02):
around tax time in February,March, April, time frame, you can
either choose to itemize ortake the standard deduction. If you
took the standard deduction,your charitable giving wasn't impacted
as much. But if you itemize,you can obviously deduct those. So
what's changed is around 85%of the population chooses their standard
deduction, which might changewith the SALT reforms that we also
(14:22):
saw. But the beauty of this isnow for a standard deduction, you
now get 1,000 for single and2,000 for married filed jointly,
where you can deduct thatgiving to your favorite organization,
which could be a game changerfor a lot of organizations that rely
on smaller donations.
Yeah.
There's also a change on thecorporate side. There's now a 1%
(14:44):
floor on corporatecontributions to charity, meaning
that you won't get acharitable deduction until donations
exceed 1% of your taxableincome. And we project that that
might impact philanthropicgiving by corporations by about 10%.
Now, on the positive side,America has a very rich and proud
tradition of giving. I knowthat you have listeners all over
(15:05):
the globe, but there's alsothis massive trend of baby boomers
retiring. The wealth transferand charitable causes will get some
tailwinds and support fromthose changes. Additionally, you
know, a strong economy, strongstock market, they really lend themselves
to individuals making largedonations to these types of organizations.
(15:27):
So those are some of thepositives, negatives, challenges
and trends that are going onin our space.
Oh my gosh, Bahman, that's alot to take in. But you know, a lot
is happening. And thank you somuch for sharing this because a lot
of positive, a little bit ofnegative, a lot of things that we
got to look forward to. Butyou know, I don't think anybody else
kind of really understood theextent of these changes and how they're
(15:47):
impacting in so many things.So thank you so much for sharing
your insights. I think I'velearned a lot and our listeners learned
a lot.
Thank you Tanya for having us.Like I said, we work closely with
our clients to make sure theyunderstand how these changes will
impact them and we're happy tocome back and talk to you as needed.
Oh, that would be fantastic.I'd love to have you back and see,
you know, maybe in a year.Let's see where we are, right?
(16:07):
That sounds great. Thanks for hosting.
Thank you.
Thank you to this month'sguest, Bahman Mirzaee for your thought
provoking insights. I'm surethe many tips you've shared will
have a lasting impact on notonly mine, but our listeners perspective
on endowments and foundations.Join us next time for another Financial
(16:31):
Perspectives episode airing onthe last Tuesday of the month. Make
sure to send in a message tothe show by emailing podcast@cfa-sf.org.
we'd love to hear what youthought of this episode or any suggestions
you have on future topics thatyou'd like for us to cover. Thank
you for being a dedicatedlistener. This podcast is produced
(16:59):
by CFA Society San Francisco,a not for profit podcast professional
association providingprofessional learning and career
resources to over 13,000investment industry professionals
worldwide. To learn more aboutCFA Society San Francisco, visit
our website at cfa-sf.org orconnect with us on LinkedIn.
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