Memo from Howard Rieger

UJC/Federation Exposure to Bernard L. Madoff Investment Securities

We want to convey to our Board of Trustees that, in the wake of the Madoff scandal allegations, UJC verified its own endowment and pension funds had no exposure to any related funds. UJC also surveyed federations, community foundations and National Agency Alliance members to gauge their losses and determine a response.

UJC received survey responses from 55 federations and community foundations. We learned that seven communities with endowments/foundations were directly exposed, with losses ranging from $70,000 through a fund of funds to $24.4 million. We also learned that one federation had exited a position with Madoff’s fund over a lack of transparency, but that the federation still had a $100,000 “hold-back” in escrow.

UJC also learned that two National Federation Agency Alliance members lost money, one losing several thousand and one losing several million dollars. Many communities also have donors who were personally victimized.

The survey asked federations how UJC can help them respond. “UJC’s Planned Giving and Endowments Department should continue to share information as it becomes available and provide guidance and support especially in the area of donor and leadership communications,” one respondent said.

Other suggestions included:

1. Provide best practices in financial management;
2. Provide updates that federations can send to their donors;
3. Forward a list of charities impacted so that federations and donors can help;
4. Prepare talking points for the federations to use with their donors.

UJC’s preliminary conclusions:

1. Less than one-half of 1 percent of the federation system’s total assets was affected.
2. Annual Campaigns could be affected if major donors and private foundations impacted by Madoff were contributors.
3. The coming year could see major philanthropic gaps created by these losses.
4. The scandal could accelerate a trend towards mergers and consolidation of infrastructure as NGOs seek more efficient structures.
5. One federation also thanked UJC for providing subsidies to attend the UJC Investment Institute.

UJC is planning a series of responses to this alleged scheme, which include:

1. Supporting federation efforts toward financial accountability and transparency by helping communities adhere to high fiduciary standards;
2. Helping federations build trust with donors by advising on communications strategies;
3. Creating marketing that positions the Annual Campaign as an all-weather strategy, especially critical when the economy falters.

UJC’s Washington office reports Congress will likely focus on numerous aspects of the Madoff case, including how non-profits make their investment decisions and other internal governance and performance issues. Some of the Congressional outreach will, undoubtedly, place the Jewish philanthropic world under renewed focus. UJC will carefully monitor and respond to such investigations on behalf of federations.