Could a Madoff Happen to RJF?

As the planned giving branch of our community, Richmond Jewish Foundation (RJF) takes seriously the job of investing and managing our precious resources, both for our individual donors and for our Jewish institutions. Recently, a donor asked if a Madoff-type situation could happen to RJF. Please allow me to explain how extremely doubtful it is that this could happen.

Bernard Madoff was charged by the Securities and Exchange Commission with defrauding clients of as much as $50 billion. Soon thereafter RJF confirmed that it had no investments with Madoff.  According to RJF president, Debra Gardner, “While Richmond Jewish Foundation is pleased to have not been entangled in these difficulties; we recognize that other Jewish community foundations and generous members of the national Jewish community were victims of this abhorrent fraud.”  Unfortunately, this sad matter came at a time already marked by recession and financial unrest.

RJF currently oversees $22 million in assets, but we don’t actually buy or sell these funds. The Foundation’s Board of Directors delegates the advisory and management responsibility to its Investment Committee led by GD Rothenberg. With an understanding that for committees to work well, they must be made up of people with differing perspectives and experience who are unafraid to speak their minds, the RJF Investment Committee is comprised of members from both RJF’s board members and non-board members. This committee includes not only money managers, bond investors, financial planners, stock brokers, and investment consultants, but a number of others who approach the work without the lens of serving as an investment professional, and these folks include doctors, business executives and community volunteers.  Because all Directors serve as an investment fiduciary (a fiduciary is someone in a position of trust on behalf of, or for the benefit of, a third party), with important stewardship duties and responsibilities, the RJF Board and Investment Committee have a strict conflict of interest policy.

The Investment Committee developed an Investment Policy outlining a strategy which establishes investment risks and returns including the percentage of funds invested in stocks, bonds, and cash, as well as the selection of investment managers.  The committee regularly monitors and reviews the Foundation’s investments which have been managed for over three years by its investment manager, SEI Investments.

RJF takes the role of fiduciary very seriously. Recently, RJF received the Consultant’s Assessment of Fiduciary Excellence (CAFE) certification. This certification acknowledges that the investment practices of the Foundation conform to twenty-two best practices in the industry. These standards help maintain an optimal level of investment governance and the prudent management of investment assets for the RJF Board and Investment Committee. This process ensures the highest level of ethical and moral standards.

So, could a Madoff situation happen to RJF? Bernie Madoff once met with SEI about investing, but he was turned away due to SEI’s due diligence and risk monitoring processes, and Madoff’s lack of transparency. To mitigate risk, RJF’s process includes the best practices of modern portfolio management.  Having an arm’s length committee, an institutional framework, transparency of transactions on a daily basis and a prohibition against self-dealing or self-interest by committee or board members makes this improbable. Madoff and other scandals have raised the alarm and diligence is at an even higher level.