Selecting members of the investment committee is a crucial task that requires a thorough assessment of his or her ability to contribute to the work of the committee, commitment to the institution, and willingness to take on a significant governance role in protecting the financial future of the institution. He or she should also have the ability to work in a collegial manner with other committee members, and possess the disposition to respect the roles and responsibilities of other parties….
Three character traits should be actively sought in all prospective investment committee members: patience, a willingness to listen to others, and a sense of humility. The most dangerous committee members are over-confident and impatient individuals who think that they can lead the committee to outsmart the market. Such individuals are susceptible to promoting actions that detract from performance, including return chasing, market timing, frequent asset allocation changes, and high levels of manager churning. They may also be dismissive of other committee members.
In addition to a diversity of professional skills to foster optimal decision making, it is important to include cultural and gender diversity to ensure that the management of the endowment has the benefit of a range of perspectives. There is a growing body of research showing that diverse groups make more informed decisions and often achieve better results. McKinsey & Company, a highly regarded management-consulting organization, found that gender diversity on boards correlates with “significantly higher earnings and returns on equity.” Moreover, investment committees should be diverse in terms of the ages of members to ensure stability and continuity and to provide the perspectives of different generations.
For those institutions that break out finance and investments into two separate committees, institutions have found it helpful to have some overlap between them as well as some members who have been on the board for long periods of time and possess a solid understanding of the whole institution. These things lead to a better understanding of how the endowment fits into the broader finances of the institution.