Diversification
of ASA Assets
 ince
this will be my last “Administrative Update”
as the ASA Treasurer, it is my pleasure to commend
the members of the Section on Fiscal Affairs for their
diligence, hard work and, at times, Herculean efforts
on the behalf of the ASA membership. The section members
are Thomas B. Bralliar, M.D., Jan Ehrenwerth, M.D.,
Richard M. Johnston, M.D., Lawrence J. Roy, M.D.,
James M. West, M.D., John W. Zerwas, M.D., (Assistant
Treasurer) and Richard E. Barwacz (ex officio member
and ASA Director of Finance).
We are very proud to report that ASA’s assets
and reserves are greater than ever before, that no
dues increase is recommended for the foreseeable future,
that we now have a rational travel and per-diem reimbursement
policy and that the proposed budget for 2007 is balanced!
Each of these accomplishments is cause for celebration
and each required the hard work and input from not
only the Section on Fiscal Affairs but also from the
conscientious efforts of the ASA administrative staff
and the hundreds of ASA volunteers running committees
and performing all the work that allows ASA to function
so well.
Diversification of ASA assets and reserves remains
one of the key unresolved issues that the Section
of Fiscal Affairs has been grappling with for the
past two years. Over the past 15 years, ASA assets
have grown to more than $50 million, but these assets
have been invested in only two vehicles — a
single bond fund and a large cap growth fund. The
Section on Fiscal Affairs has become increasingly
disturbed by fluctuations in ASA assets of more than
$1.5 million from month to month, and approximately
two years ago recommended that an independent financial
advisor be hired to provide an in-depth evaluation
of ASA investments and aid the section in developing
an “Investment Policy Statement” (IPS).
This statement would define the exact parameters for
ASA investments while also serving as a guide for
future investing. Initial evaluations pointed out
the need to increase investment returns and decrease
our risk with an active program of asset allocation
and diversification. Based on a test taken by each
member of the section as a way of assessing the level
of risk that ASA was willing to take in its investments
(moderately conservative), an IPS was developed.
The finalized IPS allowed for a significant cash buffer
while placing the rest of ASA assets into a 35 percent/65
percent split between bonds and equities, respectively.
The 65 percent in equities was divided into 26 percent
domestic large capitalized equities, 13 percent small
capitalized equities, 13 percent international equities,
8 percent real estate investment trusts and 5 percent
in emerging markets equities. The independent advisor
also helped to educate the section on the value of
diversification, the need to be invested in both growth
and value funds, the advantages and concerns involved
in active and passive management styles and the need
for global exposure. The final IPS was a 20-page document
that went to the August 2005 ASA Board of Directors
and the 2005 House of Delegates, where approval was
received without comment. At that point, the real
work for the Section on Fiscal Affairs began.
A request for proposal was sent out to multiple investment
firms seeking an investment advisor who would serve
to direct and oversee all of ASA assets. The responsibilities
were outlined in the IPS and required the advisor
to help select the best managers for each asset class,
to follow the returns of each manager in comparison
with national benchmarks and to provide at least quarterly
reports on performance to the Section on Fiscal Affairs.
The many responses that were received were narrowed
down to three firms which were each interviewed in
person by the section at its March 2006 meeting. The
unanimous opinion was that Dimeo Schneider and Associates
in Chicago was the proper fit for ASA.
Additional telephone conferencing and e-mail exchanges
led to a refinement of the investment categories,
including division of domestic equities into both
value and growth funds and providing wider diversification
of the 35-percent bond portion of the assets. In spite
of the refinements, all changes still adhered to the
originally approved IPS recommendations. The next
major project was matching actual asset managers and
funds to the various asset classes. In a marathon
telephone conference between Dimeo and the members
of the Section on Fiscal Affairs, a manager for each
of the finalized 12 asset classes was selected. In
July 2006, ASA assets began the distribution process
into the new diversified portfolio, which will be
completed over a six-month period.
A major question is: How much will all this cost ASA?
Evaluations indicate that the increased security and
decreased risk of the new diversified portfolio will
cost ASA only slightly more than what we were paying
to have the old single bond fund and single large
cap growth fund managed. Hopefully the new diversified
portfolio will be more resistant to market fluctuations
and provide ASA with the funds needed to carry out
its great works for decades to come.
Once again I would like to thank the members of the
section for their hard work in getting this important
job done!
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