Investing in Your Ministry's Future

George Cook provides perspective.

Interview by Frank Lofaro | posted 12/04/2009

In September 2009, CLA president and CEO Frank Lofaro interviewed George Cook, senior vice president of investments and director and founder of The G. Cook Group at Graystone Consulting, a division of Morgan Stanley Smith Barney LLC. Cook is responsible for strategic policy, portfolio optimization, and investment manager selection. He earned the Certified Investment Management Analyst designation from the Wharton School of the University of Pennsylvania. Cook serves on the board of the Association of Professional Investment Consultants. He is a frequent speaker for groups such as Christian Leadership Alliance, the Association of Professional Investment Consultants, the Center for Philanthropy at Indiana University, and the Denominational Investment and Loan Administrators. Cook also volunteers for several ministries, including Josh McDowell Ministries, Willow Creek Community Church, and Bright Hope International. He will be teaching a workshop at the 2010 CLA National Conference in San Diego, April 19-21, 2010.

Who does Graystone work with?

We work with college endowment funds, hospitals, and other nonprofit organizations, as well as denominations and ministries. And we work with some pension plans, both in private companies as well as in companies trading on the New York Stock Exchange.

We are headquartered in Purchase, New York, but the practice is carried out by 34 teams across the U.S. I am based in Chicago. Graystone Consulting works extensively with Consulting Group, a division of Morgan Stanley Smith Barney that focuses on conducting investment manager research and delivering investment consulting advice. Consulting Group employs more than 50 full-time research analysts that review approximately 1,300 traditional and alternative investment strategies, mutual funds, and exchange-traded funds every quarter.

What percentage of your clientele is Christian or faith-based?

Including denominational headquarters, Christian schools, Christian retirement homes, a Christian insurance company, and some Catholic hospitals, it is probably about 60 percent. Four or five Graystone teams have a pretty strong focus on faith-based organizations.

Graystone Consulting, along with Consulting Group's Institutional Services group is now one of the largest consulting organizations in terms of the number of nonprofit organizations served. We serve about 330 nonprofit endowments, foundations, and colleges.

What is the minimum investment amount for a Graystone client?

We occasionally make an exception, but a typical minimum Graystone client would be $10 million and above.

If an organization has $1 million to $3 million to invest long-term, would you recommend it receiving outside professional support?

Absolutely, because the markets are so complex. How can you possibly be the CFO of the organization, and have all the responsibilities of managing that organization's finances and bookkeeping and so forth, and then have the time to analyze where interest rates are going, what the Federal Reserve is doing, how the markets are priced, what is going on in Asia and Europe, what is going on with currency translations that could drive the dollar up or down? It's a full-time job, for multiple people.

In your view, do outside investment advisers for a ministry have to be Christians?

Absolutely not. When you get automobile work done, you don't care if the mechanic is a Christian; you want the car to run when it leaves the shop. I think it is the same with investments. It is great to fellowship with Christians, but at the end of the day, we're stewards. What matters are the skill and integrity of the adviser.

What are the two or three criteria that a small or mid-sized ministry should use to choose an adviser?

You want to know the adviser's track record. You need the adviser to statistically show how he has done. Then get names of a dozen of his clients. Randomly pick one and call to ask how he has performed.

I would want someone seasoned who has been through at least a couple of market cycles. Typically, cycles last three to five years, sometimes longer. In the 1980s we had a long bull market run. In this decade there have been two major corrections.

Next, you want someone who can clearly articulate a process. Plenty of advisers can sell great ideas: "I have a great investment for you." I don't really care about what is great right now. I want to know your process over time. How do you help me get from point A to point B? How do you control risk? How do you optimize a portfolio? How do you know when to trim and when to rebalance? How often do you meet with your clients? And much more.

Is this too risky a time for a small ministry to invest?

I believe this is definitely not too risky of a time to invest.

Interestingly, I think the greatest risk is when everything is calm and the economy is strong and the news is positive. There is no margin for error. We felt that risk was too high in early 2007. Stocks were at an all-time high, the economy had been on a strong growth path for five years. Interest rates were low. Real estate was at an all-time high. Unemployment was low. There was a lot of risk, but no one felt it. That is a perverse understanding of risk, because the higher the prices, the greater the risk. What made it risky then is that there was no margin for error. All the good news had been priced into stocks and bonds. So in 2007, we said to our evangelical clients and others that there is a lot of risk on the table, and we think actually that you should take a lot of it off.

Conversely, right now I believe there is margin for error in a wide array of investments because people are forecasting a lot of bad news. If enough bad news is priced in, the bad news can occur, and you can still wind up making a good investment return. But if for some reason things get a lot better, you can potentially make a higher return.

While we are cautious on the economy, we see some investment opportunity that we have not seen since the last downturn, in 2002. We have not had an opportunity like this to invest in certain securities since 1981. It takes experience and analytic capability to sort out the treasure from the trash.

I believe that Christians are not called to be risk-averse. We're called to be risk-takers. We're not called to be speculators or unwise in our risk-taking, but to take no risk at all is to leave the boat in the harbor, in my opinion.

What is the economic outlook for 2010?

As of the date of this interview, the good news is that we appear to be in a recovery. The National Association of Purchasing Managers Index polls manufacturers to see if they will spend more or less in the next 12 months. It has turned from negative to slightly positive. Durable goods orders seem to have bottomed and have actually started to rise. The government has spent about $4 trillion in bailouts. Banks are lending again. Stimulus plans like Cash for Clunkers and infrastructure spending appear to be having a positive impact.

However, unlike the recoveries in 2003 and 1982, this one may be muted. Unemployment rates may not have peaked yet. According to the St. Louis Federal Reserve, the official rate as of September is 9.8 percent, but another 5Ð6 percent of the unemployed workforce has given up looking for work. That dampens consumer spending. Unemployment means that people don't have money to spend. And those with jobs have been reluctant to spend.

The savings rate went from 10 percent to 0 percent from 1980 to 2007, according to the U.S. Department of Commerce. Savings rates are back up to 4.6 percent as of September and are rising as baby boomers have to replenish their retirement savings. Since the economy is 70 percent consumer-driven, changes in spending and saving behavior can impact economic growth. As of July, retail and food service is down 8.5 percent year over year, according to the Commerce Department. And it's staying at lower levels.

Do you think the U.S. is on an inflationary path?

Remember when Larry Burkett's book The Coming Economic Earthquake came out in 1989? Well, it was 20 years early.

It's hard to predict when inflation may pick up. But right now I believe the government is spending at an unsustainable pace. We just hit $4 trillion (in September) in bailouts. The budget office said recently that we're going to add $9 trillion in deficits in the next 10 years, which takes us from a national debt of $11 trillion to $20 trillion. That doesn't include Social Security or Medicare or Obama's new health-care program. All together, you're talking over $100 trillion either on the books or forecasted to be on the books. We have a $14 trillion economy. By the time you tax everyone, you only end up with a couple trillion dollars. That's not even enough to service the debt. We already have $3.80 of debt for every dollar of the GDP in the U.S. The average has been about $1.90.

I believe that among the possible outcomes of this spending, there are two that are possible ways for the government to cope with a large deficit. One is to renege. For example, I think a lot of people don't expect to get all of their Social Security money. The other is by making the currency you repay your debt with worth less than it is today, inflating your way out. Many wise investors believe it is almost inevitable that inflation will hit us with a vengeance in the future. Some are starting to think that the currency may be destroyed, and are looking for securities that may do well during inflation.

Ministry CEOs say wealthy donors are hurting. Is there a way to communicate with them in their pain about continuing to support ministries?

I'm not sure there is an easy out. Foundations or high-net-worth families that operate effectively as a de facto foundation have one or two choices. They can either keep laying golden eggs, or they can kill the goose that is laying the golden eggs. That's a hard choice. That is something that my family wrestles with as we give. Do we build for the future? Or do we say, "It's a crisis time, people are starving and the need is now"? If we don't rescue starving African kids now, it doesn't matter if we are able to give money later. They will be dead. Those things pull at our hearts. We've chosen to give more current gifts and to build less of a future reserve.

George Cook, Sr. Vice President— Investments, Director and Founder, The G. Cook Group at Graystone Consulting.

Graystone Consulting is the institutionally focused managed account business of Morgan Stanley Smith Barney. Graystone Consulting delivers advice through select teams across the U.S. using a disciplined investment process tailored to the needs of institutional clients and select private individuals and families. A hallmark of Graystone Consulting is its commitment to an open-architecture approach to investment management.

For more information, please contact The G. Cook Group at Graystone Consulting / 847.382.6608 / george.t.cook@citi.com or visit us on the Web at institutionalconsulting.citi.com/thebarringtongroup/ 2009 Morgan Stanley Smith Barney LLC.

Member SIPC. Graystone Consulting is a business of Morgan Stanley Smith Barney LLC. Consulting Group is a division of Morgan Stanley Smith Barney LLC. Member SIPC. The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Smith Barney or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.Winter2009 Outcomes

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