1. August 5, 2015 Investing Planned Giving Assets Michael Daley, CFA Senior Investment Officer BNY Mellon Charitable Solutions

2. Investment Considerations for Planned Giving Accounts Case Study: Evaluating an Incoming Trust Agenda

3. Investment Considerations for Planned Giving Accounts

4. Endowments vs. Planned Giving Vehicles 4 Understanding the Unique Issues Related to Planned Giving Programs CONSIDERATIONSENDOWMENTPLANNED GIVING Time HorizonPerpetualFinite–Life or Term of Years Tax StatusTax-exemptTaxable Distributions Unrelated Business Taxable IncomeAllowed (within IRS limits)100% Tax for CRTs Pay Out RatesOne Rate/Spending PolicyVaries by Vehicle and Donor Risk ToleranceInstitution's Risk ToleranceInstitution and/or Income Beneficiary AssetsOne Large PoolMany Small Pools Liquidity RequirementsDetermined by InstitutionVaries by Vehicle Required ReturnInstitution’s Return RequirementVaries by Vehicle and Donor Investment PolicyOne PolicyPolicy for Each Trust and Separate Pool

5. 5 Planned Giving Vehicles Considerations and Risks Charitable Trusts 1 Gift Annuities Pooled Income Funds Risk Tolerance of Charitable Institution Time Horizon/Expected Life of Income Beneficiary Liquidity Requirements/Effective Payout Rates Tax Sensitivity Risk Tolerance of Income Beneficiary Income Generation (NI Trusts) Ultimate Purpose of Gift Longevity Risk (CRATs) State Investment Restrictions Characteristics of Various Planned Giving Vehicles 1 NI Trust = Net Income Trust. CRAT = Charitable Remainder Annuity Trust

6. A Consultative and Iterative Approach 6 Evaluate Planned Giving Program Vehicles Establish Investment Structure and Guidelines Implement Investment Plan Monitor and Review Program Characteristics Review program composition and vehicle types Assess donor/beneficiary characteristics Identify and select investment solutions Establish appropriate benchmarks Draft/review Investment Policy Statement (IPS) Monitor portfolios for adherence to established guidelines Provide trading, rebalancing, liquidity management, etc. Review investment performance vs. benchmarks Ensure program requirements and needs are met –Review PIF income amounts –Monitor asset levels vs. gift annuity reserves –Consider any trust characteristic changes Determine Investment Objectives and Asset Allocation Assess variables such as risk tolerance, required rate of return, tax sensitivity Consider unique characteristics of each vehicle type Disciplined Process for Developing and Implementing a Customized Investment Plan

7. Investment Structure CONSULTATIVE AND ITERATIVE PROCESS Considerations Balancing interests of income and remainder beneficiaries Compliance with regulatory requirements (gift annuities) Payout rate and structure of program Age of donor and beneficiaries (expected time horizon) EQUITY WEIGHT

8. Investment Structure CONSULTATIVE AND ITERATIVE PROCESS EQUITY WEIGHT Asset Allocation Interests of Income & Remainder Beneficiaries Regulatory Requirements Payout Rate & Program Structure Donor Beneficiary Age (Time Horizon)

9. Investment Structure Asset Allocation FIXED INCOME WEIGHT EQUITY WEIGHT Time Horizon ShorterLonger Income Needs (Net Income) Higher Lower Need for Liquidity More Less Tolerance for Short-term Declines Less More Desire for Principal Stability More Less Desire for Capital Growth Less More

10. Managing Equity and Fixed Income Allocations Equity Fixed Income Desire for Principal Stability Uncomfortable with short term volatility Increased Income Needs Desire for Capital Growth Long Time Horizon May Be Appropriate to Adjust Target Allocation: When there is a change in the underlying asset allocation determinants Ex. Increased need for income or liquidity Not When there has been no long-term change in underlying economic, market or portfolio level variables Ex. Cable pundit suggests now is the time to buy U.S. small cap equities

11. Managing Equity and Fixed Income Allocations May Be Appropriate to Adjust Target Allocation When change in: −Expected time horizon of trust/health status of beneficiary(s) −Overall risk tolerance −Account structure −Income yield targets To comply with state investment restrictions (CGA) NOT Appropriate to Adjust Target Allocation Response to market events Media reaction −Pundit or commentator describing what will happen Intuition Attempt to time the market

12. Case Study: Evaluating an Incoming Trust

13. Asset Allocation—Case Study Facts $1M, 6% CRUT Expected time horizon 20 years Existing allocation: 25% equities / 75% fixed income Donor nervous about volatility Donor does not count on trust distributions Main goal: healthy remainder to charity Initial Observations Existing allocation may not meet long term goals Trust principle is expected to decline Higher risk tolerance than allocation implies

14. 14 Spending: Opportunity vs. Risk IMPACT OF SPENDING RATE ON PORTFOLIO VALUE Probability of Assets Greater than $0 after 30 Years PROBABILITY (%) SPENDING RATE Spending rate equals stated percentage of inception market value and increases at an assumed inflation rate of 2.5% per annum. Asset allocations are constructed based on current BNY Mellon Wealth Management strategy recommendations: 1 Comprised of: 29.8% large cap equity, 3.7% mid cap equity, 2.3% small cap equity, 12.0% developed international equity, 12.3% emerging markets equity, 10.2% taxable fixed income, 0.9% high yield fixed income, 2.2% absolute return strategies, 11.7% long/short strategies, 10.0% private equity, 1.6% commodities and 3.3% managed futures. 2 Comprised of: 22.4% large cap equity, 3.1% mid cap equity, 2.0% small cap equity, 9.0% developed international equity, 10.0% emerging markets equity, 28.8% taxable fixed income, 1.9% high yield fixed income, 3.1% absolute return strategies, 7.3% long/short strategies, 7.5% private equity, 1.2% commodities and 3.7 managed futures. 3 Comprised of: 13.4% large cap equity, 3.2% mid cap equity, 2.1% small cap equity, 4.5% developed international equity, 4.4% emerging markets equity, 60.2% taxable fixed income, 2.0% high yield fixed income, 4.4% absolute return strategies, 2.6% long/short strategies, and 3.2 managed futures. Return assumptions: 8.0% large cap equity; 8.75% mid cap equity; 9.5% small cap equity; 7.8% developed international equity; 10.0% emerging markets equity; 4.0% taxable fixed income; 7.0% high yield fixed income, 6.0% absolute return strategies, 7.5% long/short strategies, 12.0% private equity, 7.0% commodities and 6.0% managed futures. 80% Equity/20% Fixed Income 1 60% Equity/40% Fixed Income 2 30% Equity/70% Fixed Income 3

15. Current vs. Proposed Asset Allocation CASE STUDY

18. Range of Returns (Current Values) CASE STUDY

19. Range of Assets (Current Dollars) CASE STUDY

20. Thank You. Michael Daley, CFA BNY Mellon Planned Giving 201 Washington Street Boston, MA 02108 T 617-722-7934 michael.daley@bnymellon.com