At the start of the 2010s, The Leona M. and Harry B. Helmsley Charitable Trust was only a few years old and determined to avoid some of the liquidity missteps made by its brethren during the financial crisis.
Helmsley's liquidity certainly isn't going to be an issue to start the 2020s.
The $6.2 billion philanthropic foundation has in the past 18 months allowed itself to amass an unusual, relative to peers, amount of dry powder.
As of the end of November, Helmsley's cash/ reserves (non-return-generating assets) stood at 23%. In this bucket marked "safe" assets are securities — such as Treasuries — that can be converted to cash immediately. However, the fact that nearly one-quarter of the fund's allocation is pegged to what are essentially risk-free securities should not be interpreted as a market call, said Chief Investment Officer Rosalind "Roz" Hewsenian.
Because if there is one phrase to avoid when discussing the fund's asset mix with her, it is "market timing."
"If we were only worried about the asset side, and not worried about spending, then I would have to agree with naysayers who say that you can't time the market," Ms. Hewsenian said. "But we have a foundation to run, grants to make, IRS-mandated spending requirements, staff to maintain, so I do need to worry about spending."
And so while Helmsley's safe cushion is neither the result of a deliberate reallocation, nor some sudden monetization, it is a reflection of an organizational mindset that puts grant-making front and center. Their models do not make forecasts about the future, but what the models indicate about the current period has them being pragmatically cautious even as they insist they are not market timing.
"When we do reach a recession, we want to be able to withstand it without any impact to the operation," Ms. Hewsenian said.
As portfolio managers, the Helmsley team appears more idiosyncratic than emblematic relative to other foundations.
As of the end of 2018, the 161 private foundations surveyed annually by the Council on Foundations and Commonfund had an average short-term/cash allocation of 4%; average fixed-income allocations were 9%. These averages were basically unchanged from 2017.
"It's definitely atypical," NEPC's Samuel J. Pollack said when learning of a foundation having 23% essentially in cash.
A partner who helps to head up NEPC's foundations and endowments practice, Mr. Pollack was quick to note that each institution has its own cash-flow considerations; and that there isn't any one-size-fits-all approach.
"Some organizations might take a barbell approach, balancing illiquid investments with highly liquid/defensive investments," he said.
Most foundations and endowments do have a more balanced and diversified approach, he added.
NEPC has no preset model for target allocations to cash. The firm does have a stated view that "we are late in the cycle," Mr. Pollack said. Returns should be "consistent with long-term averages across asset classes" in the next 18 to 24 months, Mr. Pollack said. But harsh lessons from the past might be fading too far from memory.
In a 2018 research paper marking the 10-year anniversary of the global financial crisis, Mr. Pollack cautioned "it may be hard for endowments and foundations, basking in the warmth of an extended economic expansion, to remember the havoc wreaked by the global financial crisis 10 years ago … or the liquidity rout that forced many to sell performing assets at depressed valuations so they could meet their spending needs."
Indeed, some of NEPC's clients had dry powder to deploy at the precise moment when such flexibility was most valuable. But the crisis brought on a "deeper level of introspection for many institutional investors," Mr. Pollack wrote in his paper.
General discussions about how much, if any, dry powder to cordon off during the late stage of a market cycle are bound to become more frequent as a new decade begins. One veteran investment consultant strenuously warned against it.
"There are those who have tried to time the market and have been spectacularly wrong, for forever, and I don't think that's likely to reverse," said Michael Rosen, chief investment officer of Angeles Investment Advisors LLC.