Minutes of the Meetings of the Finance Committee of the Internet Society

A meeting of the Finance Committee of the Internet Society (ISOC) was held on Thursday, March 28, 2013 at 17:00 UTC. In attendance were Bert Wijnen, acting as Chair of the meeting, David Farber and Bob Hinden as members of the Finance Committee. Jason Livingood, sent his regrets.

Also in attendance were Lynn St.Amour, ISOC’s President and Chief Executive Officer, Walda Roseman, Chief Operating Officer, Greg Kapfer, Chief Financial Officer and Sandy Spector, Finance Director.  Also present were John Marshall and Trip McLaughlin from Morgan Stanley.

Call to Order

Bert called the meeting to order.

Morgan Stanley Review of 2012 Investment Results & Policy Statement

John Marshall presented a report on the 2012 performance of the funds invested with Morgan Stanley. He noted that these funds returned 4.7% (before investment management fees), which is significantly higher than the market returns given ISOC’s investment model in fixed income instruments.

John gave an update of the current financial market and highlighted that the road for fixed income investors will be significantly more difficult in the coming years.  John noted that, since Internet Society was heavily invested in fixed income, the Company should review its investment plan for the future.  Trip McLaughlin noted that Internet Society has time to consider options and thoughtfully make a decision on future investments. Greg suggested that more information be supplied to the Committee in the coming weeks so the Committee could consider Morgan Stanley recommendations at a future meeting.

Trip McLaughlin then reported on his review of Internet Society Investment Policies (Investment Policy adopted in 2009 and Endowment Policy adopted in 2012). Trip stated that the policies should be updated for clarity of the assignment of responsibilities to the Board of Trustees, Chief Financial Officer and Investment Advisors; criteria to evaluate investment managers and overall portfolio performance; and review of the Target Asset Mixes in each policy.

Greg suggested that there were two distinct reviews to be undertaken. He would endeavor to provide the Committee with Morgan Stanley policy changes well before the next call. The second review is of the policies’ Target Asset Mixes, and those suggestions from Morgan Stanley would be provided in advance of the next call, as well.  Bert noted that the investment objectives of the two policies (Continuity Funds and Endowment Funds) were quite different. Greg noted that Morgan Stanley’s recommendation for the Continuity Funds would not be an abrupt change, but more like the 20% now being invested in equities by PIR. Trip agreed to send to the Committee a set of eight (8) hypothetical “models” that demonstrate a range of investment philosophies.

Greg also reported that he and Sandy were reviewing the possibility of creating separate investment accounts at Morgan Stanley for (a) Continuity Reserves, and (b) Restricted Funds, since each may have different investment objectives in the future.

Review of 2012 Unaudited Financial Reports

Greg solicited comments from the Committee on the unaudited 2012 Financial Details previously provided to the Committee. He noted that a more detailed discussion would be ready for the Board Package the following day. Bob pointed out that individual membership revenues were well under the budget and suggested that a change in strategy might be warranted there. Walda noted the 2013 budget for individual members had been greatly reduced from 2012.  She also noted that with the addition of the Senior Director of Resource Development a new donor base would be built over time. Bert recommended that if there were no great changes to be reported by management from preliminary reports, the Committee did not need to discuss the 2012 financials in greater detail.

Future Meeting Dates and Times

The Committee discussed setting the next meeting in mid May to review the Q1 financial reports that would be completed by that time. At that meeting, Morgan Stanley would be invited to return to make further recommendations. If scheduled, this would give time for a Committee report to the Board at the May 27 Board call.

AOB

Bert called for any other business.

Adjournment

With no other business, the meeting was adjourned at 18:15 UTC.