Pete McCown on how a community foundation works for good

Ever wonder how community foundations manage to significantly impact local communities? In today's episode, our hosts, Kevin Deary and Marshall King, get insights from Dr. Pete McCown, president of the Community Foundation of Elkhart County, about strategies for managing diverse funds, including scholarships, endowments, and donor-advised funds. The discussion covers the mission and vision of such foundations, emphasizing their goal to improve community life through strategic charitable giving and partnerships with local nonprofits.

00:00:23: Introduction of Doctor Pete McCown

00:00:36: Role and Responsibilities of Pete McCown

00:01:03: About Community Foundations

00:02:01: Establishment of the Community Foundation of Elkhart County

00:02:40: Definition and Function of Community Foundations

00:05:09: Donor Advised Funds

00:08:22: Examples of Donor Advised Funds in Action

00:11:13: Investment Strategies for the Community Foundation

00:14:32: Endowments and Nonprofit Organizations

00:17:13: Grant Process for Nonprofits

00:20:20: Pete’s Role as President

00:22:27: Intersection of Generosity and Personal Faith

00:24:08: Pete’s Involvement in Economic Development

00:26:19: Elkhart county's manufacturing economy

00:26:51: Definition of servant leadership

00:27:49: Pete's 13th anniversary and role

00:28:17: Inspiration and hope in the role

00:29:00: Show credits and acknowledgments

This show is a production of the Community Foundation of Elkhart County. It is powered by equipment from Sweetwater and recorded in the Viaggio Studio at weIMPACT in Elkhart's River District. Editing is done by the award-winning communication students at Goshen College, home of one of the best college radio stations in the nation. Listen to Globe Radio at 91.1 FM. Learn more about the Community Foundation of Elkhart County at inspiringgood.org You can follow us on Facebook, Instagram and LinkedIn. Music is provided by Sensational Sounds. Thanks for listening. We hope you are inspired and inspire good and your community.

Transcript

0:23

Today is Doctor Pete McCown, president of the Community foundation of Elkhart county. As president, he serves as chief investment officer and helps coordinate the work of our growing staff and dozens of volunteers who serve as board and committee members. Prior to taking this role in 2011, Pete served as professor of business and vice president for advancement at Bethel University in Mishawaka. Our community foundation is one of about 750 in the US and more than 1800 throughout the world. The first one was established in 1914 in Cleveland, Ohio. And today we're here to hear from Pete a bit more about how a community foundation functions and really what it is. A 101 class on community foundations, if you will. So welcome, Pete. Thank you. It's a pleasure to be with you, Pete. It is both of our pleasures to work with you and for you. We're so excited to be part of this team, this community foundation, to see how the impacts the greater community through philanthropy, through the grants that are given. And there's just so much that we get asked about. What is a community foundation? And maybe you could start with the mission and the vision of ours. Sure. So the mission of the community foundation is really two part, to improve the quality of life in Elkhart county by inspiring generosity. And we take both parts of that mission quite seriously. How and when did the community foundation, when did ours get established? So we were established in 1989. We have the good fortune of having a number of our founders still alive, and each of them tells their own story about the genesis of the community foundation. But essentially a group of community leaders back in the eighties who were aware of the concept of a community foundation in other environments and thought it was a keen idea for Elkhart county to create this community chest, if you will. So, Pete, what is a community foundation like? How do you define. There are some legal definitions, but if somebody says to you, what's a community foundation? How do you answer the question? Well, as you said, there are hundreds of community foundations across the country. The great state of Indiana has the privilege of having 94 of them. So there is a community foundation that represents all, each of our 92 counties in Indiana, thanks in large part to the involvement of the Lilly endowment, who for the last 30 years has invested in the growth and development of community foundations. And frankly, each of them would be slightly different in personality. But as a general rule, it is a place for donors to place assets benefiting causes that are of interest to them. So we have about 900 different funds at the community foundation. We have a couple hundred scholarship funds where the donor has told us, I want to help a person studying nursing, attending Goshen College, who is a graduate of Elkhart county high schools. And then we go about the work of choosing the student that best fits that criteria, but it's the donor who has given us the criteria. And then we have about 300 endowments that are specifically to the benefit of a not for profit organization, most of which are in Elkhart county. So the Humane Society and the Boys and Girls Club and Faith Mission all have endowments with us. We simply co invest that money and then write a check once a year to those organizations. But we use very little discretion. Matter of fact, we use no discretion about what they do with those monies unless the donor has put some sort of restriction on it. And then we have a few hundred families that have experienced some sort of windfall event in their family story. Usually the sale of a business in which they have placed assets in what's called a donor advise fund. And it is effectively a private family foundation under our architecture. But those donors are the ones that are making the decisions about where the charitable dollars get directed, both in and outside of Elkhart county. And then we have. We have a handful of field of interest funds, but the largest fund we have at the community foundation of Elkhart county is the fund for Elkhart county. And that is a fund where donors, hundreds, if not thousands of donors, have said, I want to benefit this community, but I trust the decision making of the community foundation. And so I'm leaving it to your discretion to decide where the proceeds of that fund are directed. So, Pete, we're talking about pooled assets, just our investment strategy. How large is our foundation, and how does it fit in with the rest of the country? Oh, well, we just had our finance, our may financial statements that were just released, and we're at $456 million today. About 200 of that, 456 is that fund for Elkhart county. So we distribute, with our discretion, about $10 million a year. We spend 5% of those assets. We would be in the top 60 or 70 largest community foundations. That would be one of the ways that you would kind of compare community foundations. But there are other ways, too. Gifts, per capita assets per citizen, distribution rate. So we just. Our distribution rate is about 9% on any given year. A lot of that because of the donor advised fund families that often they may put a couple million dollars into their fund at the beginning of the year and give it all away by the end of the year and then replenish it. So donor advised funds, that's rather new, isn't it, to the industry? No, I don't think donor advised funds have been around for probably 100 years, but it is certainly the growth area for many community foundations. Donor advised funds behave like a private family foundation, but they actually have a lot more flexibility than a private foundation. And so donors have been been finding that it's actually easier to use us to do all the back office work and they don't have to do the tax return at the end of the year and have an attorney and all the rest. So on a smaller scale, if somebody has a donor advise fund and puts $10,000 into it, I mean, how is it different than just like writing a check directly to a nonprofit from your checking account? Yeah, I mean, that's a really good question. And there are lots of folks that give charitably directly to the organizations and they really don't need a community foundation to be the intermediary. But I can use a couple examples. We had a family in this community who sold their family business for a few hundred million dollars. And so in the same tax year that they had all of that capital gains consequence, they knew that they wanted to continue to give away. They wanted to give charitably as a family. And the best thing to do was in the same year as the sale of the business, to place assets with us that they will give away for generations. There's another one of our donor advice fund families where he is an officer of a publicly traded company, and for him to give away those assets require quite a bit of SEC disclosure. And so it's easier for them to give a large gift to us. We know how to take that gift through the SEC regulations, and then they can give from that asset in smaller discrete increments over the course of the year. So those would be a couple reasons. A lot of times it's easier for people that do a lot of charitable giving to place it with us in a donor advice because they get the tax treatment once when they. So let's say some family gives away half a million dollars a year, but they do it in $5,000 increments. When they go sit down with their tax accountant at the end of the year, they have one gift receipt for half a million dollars and they don't have to keep all the records of, we sent$1,000 to here and $1,000 there and 5000 here and 10,000 there. And we charge fees to do that for them. Small fees, I think. Yeah, very modest fees. So we charge 25 basis points, which is a quarter of 1% per year, to administer those funds, no matter how. Many gifts they give or. Correct. And then are those funds, when we receive those funds and put them in their donor advise fund and make them available for them to spend, are we also investing that money as part of our. As part of our endowment as a whole, and then they receive the return on investment for that? Yes. So most of the $456 million that we carry is part of our. A coordinated investment portfolio, which would look like a university endowment with equities and fixed income and private equity and alternatives and the like. We have a second fixed income only solution for people that know that they're going to give most of their money away within the next few years, and they don't want to take the risk of a down stock market. But I would say probably 430 million of our assets are deployed in our traditional investment portfolio. And whatever return we realize this year, I think we're up about 10% to this point, accrues to the balance of each of the different funds on a prorated basis. And, Pete, in terms of investments, I mean, we have a committee of volunteers who help us make those decisions. Our chief financial officer, Cole Patuzzi. And you are key players in that. But a couple of years ago, we changed our investment strategy, and I think it was fascinating because we realized, unlike our retirement accounts, which have a, you know, we want to retire by the age of 64, 67 or 70 or whatever it is, new foundation is never going to retiree. Correct. So talk a little bit about our investment strategy and how we approach that. So when I came to the foundation in 2011, our investment portfolio was deployed essentially 70% equity, 30% fixed income. And that would be fairly traditional. But for a number of years, I have been pressing the investment committee to get comfortable with the idea that. That our investment portfolio is really perpetual. And a few years ago, I convinced them to go from 70 30 to 80 20. So 80% equity. And the argument is over a hundred year period of time. Pick any hundred year period of time. Equities will outperform fixed income or bonds. I'd rather own companies than lend to companies. And so they agreed to go to 80 20. If I could get them to 90 ten or to 95.5, I would really love to be there, but the volatility of that gives people heartburn. But we agreed to go to 80 20 in 2019, and we decided that we were going to take ten quarters to go from 70% to 80%. So we would have increase our equity exposure by 1% per quarter. But we agreed that if the market fell by more than 25%, we would immediately go to 80 20. And, you know, what happened in March of 2020 and the arrival of COVID on the shores and the behavior of the stock market. So we actually had about a 25% return in 2020 because we took 10% in a time that the stock market was down 40%, and that 10% had essentially 100% return on that portion. So we're now at 80 20, and about 60% is traditional, long only equity, and about 20% is private equity. You know, Pete, one of the things that's important to our community foundation is the fact that we have impact on the community, particularly those who are in need. Those who are need help where we work closely in partnership with our nonprofits. Many have started endowments, and others want to, but they're not quite sure exactly how an endowment will help them and then why they should put it with us. But maybe you can. If you could talk to all the nonprofits, what would you say? You know? So, endowments are permanent assets to the benefit of a charitable cause. So I talk about trees, fruit trees. So an endowment is the tree, and we don't chop the tree down. We just pluck the apples and use them to make apple pie. So, as a not for profit organization develops financial strength, they are really well benefited to have an endowment. But it takes quite a considerable amount of time, typically, to grow an endowment. But most not for profits have relationships with donors. And if they're mature enough, those donors often will do things like include that not for profit cause in their estate plan. For example, when that gift is received, it's often the largest gift that donor will ever make to the organization, and it's gonna only happen one time. So my advice to not for profit organizations is to use those kinds of gifts to put money away for the long term future. And then, you know, our distribution rate is 5%. So if you have a million dollar endowment, you're gonna get a check for $50,000 a year each and every year. The trade off is, if you're working with donors, usually you have mission, you have aspirational mission, and you're going to use as much as people are willing to give you to expand and deploy your mission. And so the trade off between, if a donor's willing to give you a million dollars or you get$50,000 a year, is a really hard trade off. But if they're disciplined enough, they can grow that endowment over the course of time. Think about large universities. The University of Notre Dame is in this community and they've got, I think, a $6 billion endowment anymore that generates $300 million a year each and every year for them. But, boy, it's taken quite some time for Notre Dame to get to a place where they have $6 billion that is set aside for mission. So as it pertains to grants, because I think that. And thank you for answering that was excellent. And I think all of our nonprofit CEO's and board members, if they don't already have one, they should be asking, how do we start one? So this is great, but we also give money away. We are a really strong partner with our nonprofit friends. There is a process that they have to go through, and maybe you can talk a little bit about how that works. Yeah. So we have three areas of focus here at the community foundation. One is kids and families, and other is career pathways, and the third is place making or vibrant community. And we continue to use volunteers as our grant decision makers. So about 90% of our discretionary funds are given away under the authority of our volunteer grant committees, and there are those three grant committees for each of those areas. Our program staff's role here at the foundation is to help be a liaison between the not for profit that has an idea or a need and the volunteer grant committees and help them prepare the best grant application possible for the committee to make good decisions. Well, we, frankly, Kevin, we give away, we probably say no 50% of the time to organizations because we still, you know, $10 million sounds like a lot of money until it's not, and we get $20 million worth of requests, if not 30 or $40 million a year worth of requests. So we have to use some sort of decision making process to choose the best of those grant opportunities. And the role of the program officers here is very critical in that, because they work hand in hand with the board, with the CEO, and with the organization to even be prepared. So what's coming through is an organized ask. And then also one of the key areas is we also provide support. So if they need help with budget, that the program officer can help them understand their own budgets. And some of the small agencies need some help with that. Yeah, that's true. So, you know, we don't want a not for profit organization to have to go hire a grant writer to present a request to us. And so our program officers really fill that role as a coach when necessary. Pete, what I've heard you, like, describe your role to some, to people, and sometimes you're very, you're always very humble when you talk about your role here at the foundation, but you end up wearing a lot of hats. I mean, you were involved in the investments. You're at least aware of what the program folks on the, you don't stick your fingers in it, so to speak, but you're aware of what's happening on the program front. You're interacting with CEO's, you're having lunch with donors. But how do you describe what it is that you do as the president of this growing organization? You know, I tease a little bit. Now, when I started the foundation, there were four employees. Today there are 30 ish. And we have the great fortune of having really talented people that are leading in various areas, including the two of you. And so I, I sometimes humorously say I make very few decisions anymore at the community foundation. And that really is true. The foundation has many other people that are making the most important operational decisions. So my role anymore, my love and passion, is the whole donor generosity side of things. I'm proud of the grant making we do, but I don't know that I add a whole lot of value on that side of the work. So what drives me on Monday morning is to help people be generous. And if the community foundation is the right instrument to accomplish their generosity, then, you know. But I appreciate the work of the United Way. I appreciate people that give directly to organizations. This is not about growing the balance sheet of the community foundation. It's about helping people be generous and make our community better. And when the foundation is the right instrument, then we fit. So often I will say my role at the foundation is to be the pastor of stewardship and generosity to a congregation of 210,000 people that live in Elkhart County. I guess my other role at the foundation is to make sure that we have talented people and that we all understand the direction that we intend to go and that the work is coordinated. And sometimes that has to be refereed. And then I guess, third is to create an esprit de corps at the foundation and be a guardian of our reputation and our identity. And I take that quite seriously as well. So, Pete, you just used religious language, talking about being a pastor of stewardship. You're a man of deep faith. I mean, we are a nonsectarian organization, but this is deeply personal and spiritual for you. Talk a little bit about how stewardship and generosity intersects with your personal faith. Sure. So my own christian value system informs the way I see the world, but every major religion has generosity as a key component of that faith journey. So, you know, in the hindu religion, it's called Dana, and in the jewish tradition, it's called sadaqah, and in the muslim tradition, it's called zarat. So I see generosity as a spiritual act. And regardless of which religious perspective you may or may not embrace, even those that are agnostic still talk about being responsible for giving back or for, you know, I've been blessed, and so I need to bless others. And that still is very spiritual language that people use, and so helping people on that journey is a real privilege. So, Pete, we so appreciate the way you live your life. You are seen by others, not only internally, but externally. As a community leader, much has been asked about you in spending time in economic development that's bigger than our community foundation. Could you talk about your role in that? I never imagined I would get involved in economic development, but a decade or so ago, I was asked to participate in a community conversation around pursuing a $42 million state grant in a grant program called regional cities. And I saw it as an opportunity to bring resources to Elkhart county and to our region, which we call the South Bend Elkhart region. And we were fortunate to win that $42 million award. On the heels of that, we were invited by Lillian Dowment to think about economic development. They gave us another $42 million, and then a few years ago, the state started a new grant program and awarded $50 million to this region, and we were just awarded another $45 million. So we've brought approximately $200 million from outside of this community to this community. And so, as a result, I've chaired the South Bend Elkhart regional Partnership since its inception in 2014, I believe. And we have seen impact through businesses, through community growth, through housing. What other areas have you seen in economic development? Oh, you know, a lot of the state's money has been invested in quality of place related matters. What we've realized is that to attract the next generation workforce, quality of place is important. Younger adults are choosing where they want to live and then what they want to do when they get there, as opposed to my generation, where you move to where there was a job opportunity. So that has been deployed. But the money from the Lilly endowment has been used to help manufacturing companies become advanced manufacturing companies. And Elkhart county is one of the most dense economies as it relates to manufacturing jobs per capita. So approximately 50% of the jobs in Elkhart county are manufacturing based. So all those jobs that everybody else wants to come back from overseas, we have. Here we are the rv capital of the world. Almost any motorhome, fifth wheel or towable trailer has been either manufactured here or the corporate headquarters is located in Elkhart county. And my last question is, you are a servant leader for sure. And a lot of people hear that, and they're not exactly sure what the definition of a, of servant leadership is. But could you maybe define that as it pertains to you and in general? Oh, boy, that's a big one to unpack. I would say if you think about an organizational chart, a person who thinks about that as a servant leader would turn it upside down and they would see the CEO, the servant leader would be, their role would be to make sure that everyone else is thriving and is given the opportunity to perform at their highest level and is protected and supported. But there are books on servant leaderships, and we don't have time to really unpack that more completely. I don't think, Pete, you're marking roughly your 13th anniversary in this position. We've seen tremendous growth in the organization. You delight in this work, and that's clear. But what gives you hope in this role as you look forward or just even today? I often will say that I have the best job in the world. I love what I do. And that's around getting to work with the not for profit organizations that are serving the community difference that is being made by those organizations, but also working with generous people. And most people that are generous are good, and they're enjoyable to be around. And so I spent a lot of my time working with good people that are fun to be around. Great. Well, thanks so much for joining us today and thanks for leading our organization and being a great person to work for. The show is a production of the Community foundation of Elkhart county. It is powered by equipment from Sweetwater and recorded in the Viaggio studio at we impact in Elkhart's river district. Music is provided by sensational sounds. Editing is done by the award winning communications students at Goshen College, home of one of the best college radio stations in the nation. Listen to Globe radio at 91.1 FM or online. Learn more about the Community foundation of Elkhart County@inspiringgood.org. dot. You can follow us on Facebook, Instagram and LinkedIn. Thanks for listening. We hope you're inspired and inspire good in your community.