Endowments and foundations should consider restrictions on investments with hedge funds and other private funds that have defined lockup periods that prevent access to invested capital, according to the CFA Institute's first Investment Management Code of Conduct for Endowments, Foundations and Charitable Organizations.
Although these commitments “may meet the investment objectives and risk tolerance of the organization, such arrangements may affect future members' ability to effectively manage the financial resources to meet the funding needs of the organization,” one of the principles states in the 28-page set of standards released Dec. 1.
The institutions should “consider liquidity” and “incorporate, as appropriate, limitations or restrictions on investments with defined capital lockup periods,” the code states. The code also establishes a framework of best oversight practices for board members, staff and others responsible for managing the financial assets of the organizations worldwide.
Compliance with the code is voluntary. The CFA Institute encourages organizations to notify it when they elect to adopt or comply with the principles of the code. But the CFA Institute does not verify compliance, according to the code.
