Monem Salam:
Welcome to Halal Money Matters, sponsored by Saturna Capital. I'm Monem Salam. And today's episode is kind of like a continuation of, things we've been talking about in the past. Like a three-part series, if you want to call it. It was on, you know, nonprofits. The initial one was, was about, just basically like the five pillars of a nonprofit’s financial strategy. The second one got into creation of and running endowment. And now with Motasem Benothman, we're going to be talking or how to create a lasting endowment.
Motasem is a founder of Portola Springs Capital. It's a crypto investment fund. But also he runs Investment Endowment Advisors, specializing in helping nonprofit organizations build endowments. He's a co-founder there. He's graduated with an MBA from UCLA. And he's served on multiple different, nonprofits, from Tayba Foundation to New Horizons. And also the one that we're talking about, which is the Islamic Endowment Advisors. I'm really excited to have him here. Let's get started.

As-salamu alaykum, Motasem, how are you doing? This is like the second time we have had you on the show.

Motasem Benothman:
Walaikum Assalamu. Yes, it is. Thank you. It's nice to see you again.

Monem Salam:
Yeah. It's great. Do you want to just give a quick, uh, maybe a background of what you've been up to since we last talked, which was, I think you were one of our very, very early episodes when we talked about Bitcoin and, and cryptocurrency and those types of things. So, is there anything you want to catch up us on, on, on, on what you've been up to?

Motasem Benothman:
Yeah, I guess I mean, so one, I'm still running Portola Springs Capital, which is a cryptocurrency investment fund. Uh, and then on the sides with some free time, I've now, uh, along with two other co-founders, started the Islamic, uh, endowment advisory, which is a nonprofit that helps, uh, basically consults Muslim organizations in America to form and govern their endowments. Uh, so there's been a lot of activity.

Monem Salam:
So, tell me about this and this Islamic endowment advisory. Like what, what made you start it? What was your kind of the idea behind it?

Motasem Benothman:
Yeah. The main idea is that if the Islamic organizations in America are kind of far behind, uh, the other religious organizations in America in regards to having endowments, uh, we, we did some analysis using some IRS form nine nineties that were filed. And it seems like Muslim organizations are on the low single digit percentage wise in terms of having an endowment. And you compare that to churches at around thirty-four, thirty five percent. So that's almost a ten X increase. So that signals a problem. And then on top of that, it seems anecdotally, they're kind of recurring stories that we hear about, uh, endowments that Muslim organizations have where they, they face challenges mostly rooted in governance issues. And, uh, so we wanted to, we wanted to kind of basically build, build something to, to help these organizations establish things properly from a governance standpoint.

Monem Salam:
That's great. You know, and I think I've told you, but I'll just kind of remind everybody who's listening. This is like a, it's our third in a three-part series on endowments. Um, when we started off with was just or just a generally nonprofits we started off with was talking a little bit about like the five basics or five pillars of, of, you know, finance within the nonprofit. And then one of the ones in that, in that, one of the ones we got the most feedback on, and also the more deeper dive was on endowment. And we had a second session about how to actually set one up. Um, and now we're getting into actually how, how do we manage it from, from that, from, from that phase. So talk to me a little bit about if you can, um, the, the kind of the progression from setting it up to managing and what kind of maybe what the transition from and what kind of things we should, uh, the boards and stuff should be, uh, looking out for and not stumbling along the way when, when they're, when they're beginning to manage the money.

Motasem Benothman:
Yeah. Um, so, so first, before I dive into the transition, I, I guess I'll say a, a larger problem with organizations, uh, is just kind of getting off zero. Right? So just setting it up period. And I think one, one comment I'll add to that is one of the problems that I think, uh, one of the problems tied to this is that when you're working, let's say you're on the board or a staff of a non-profit organization, long term to you usually means three to five years, right? Like when you're building a strategic plan or looking at long term financial planning, five years is kind of the max window you're looking at. And with an endowment, you're thinking perpetuity, you're thinking multi-generational. And that that requires a totally different mindset. So for most people working at organizations or working for them three to five years, it's easy to kind of just focus on the financial strains that you're facing currently. And putting money aside is just kind of hard to do. So it requires setting aside some separate time and really thinking of things from, from a long-term perspective to, to help get off zero and build the endowment once, once you're there in terms of transitioning to, uh, to managing it, that requires basically a different set of skills, right? The, the, the founding or forming of it is, is more about long term vision and leadership and getting consensus in the organization. But once you've decided to do so and you now want to manage it, now you want to make sure you have a team that basically has skills around asset management, governance, and so forth to properly manage that money so that that requires basically a, a committee. Uh, so an investment committee, I'll, I'll refer to it in this conversation as an endowment committee. Um, so it's important for an organization to, to build this committee and seek talent with diverse skill sets that, that fit into this, into this committee to help manage based on different asset classes and decision making with, with investing and perhaps even overseeing asset managers or whatever it may be.

Monem Salam:
So let's talk about that a little bit. I mean, because that comes in, starts off with the governance aspect of it as well. So how do you go about selecting a manager or trustee? What, what, what should the board of the organization be looking for? You know, should it be an elected position? Is it appointed for how long? All of those things.

Motasem Benothman:
So I guess there's two things. There's the, um, a potential asset manager, and then there's the oversight, which is the endowment committee, right.

Monem Salam:
Which could be the same if you weren't, if you wanted to or you're recommending not.

Motasem Benothman:
Right. Uh, correct. So, so I think regardless, you should have an endowment committee that's in all cases. The asset manager, I think, only makes sense after you've achieved a certain size of AUM or certain size of your endowment. Um, just because they charge fees and there's, there's also kind of bang for the buck that you get out of that relationship that, um, that requires some, some size. Um, so I think for selecting the endowment committee, that, that's more of finding people in your community or that are, you know, have care about your organization that have skills either in equities, real estate, commodities, fixed income, just broader asset allocations, maybe PE or VC, general investing, risk management, uh, all these different types of things. Um, and you want diversity and not only skill set, but also in opinions, right? You don't want everyone to be thinking the same way. You want there to be dialogue in these meetings so that ideas can be challenged. Uh, one. We also don't want kind of one person that just kind of leads everything. And if that person likes a particular type of investment that the rest of the community is just kind of yes, yes, men or women that just kind of follow, follow that. Um, in terms of the asset manager, if, if you achieve a size to where it makes sense to outsource, uh, the, that the execution. Um, so typically the endowment committee is going to define like an asset allocation, uh, basically definition. So we want, you know, sixty to eighty percent in equities, for example, and X percent X range in real estate and so on and so forth. And then the asset manager will come towards the execution and recommend specific vehicles such as, such as the Saturn vehicles to apply in each of these categories. And then there's dialogue back and forth and tweaking and tweaking that.

Monem Salam:
Right. I mean, one of the things you mentioned earlier, so, um, was the idea that, you know, what I've seen a lot of times is the people that are on the investment committee or the, or the, you know, for the, for the, for the endowments or from the, they're successful, obviously in their career. Some of them are in investments, but they have a particular, uh, tilt towards either real estate or private equity or investments in the stock market, those types of things. And what ends up happening is that, you know, they become the if you look at the if the committee of any masjid and you look at, oh, this guy's a private equity, most likely their investments are all going to be in private equity. Or if you look at real estate, then most likely all their investments are going to be real estate. And it doesn't speak to the balance that you're talking about to have both, um, you know, all different kind of asset classes that are represented, especially when it comes to small amounts of money as you're slowly beginning, um, you know, you might not only have, let's say fifty to maybe hundreds of thousands of dollars. And does it really make sense to have a complete diversification of every single asset class that's out there? What do you think?

Motasem Benothman:
Right. So, so I think your explanation is spot on in that we do tend to have one person that carries too much influence in these decisions, and that creates significant bias, if not conflict of interest in some cases. Um, so, so you do want to challenge that. Um, and then in terms of the diversification, so this is where kind of the size of the endowment matters, right? So if you look on one end of the spectrum, you have like the large university endowments and kind of wanting to learn from, from them as, as the arguably ideal model, uh, from an asset allocation perspective. The problem there is they have large allocations to PE, private equity and venture capital, things like that. And those vehicles simply are. If you have a one hundred thousand dollars endowment, you simply can't, cannot allocate to those vehicles. Uh, you can't get access to them. You can't even meet their minimums and so on and so forth. So as the endowment is small, um, and I would, I would say usually about one hundred K kind of is, is what I would think of as an entry point from an endowment standpoint. Um, then you're going to be heavy in, in equities, right? Um, just because it's hard to diversify. You can have a little in real estate, a little in commodities, maybe a little in sukuk, but you're, you're going to be very heavy in equities. And then as that endowment grows, then you're able to kind of expand and go into some, some other vehicles, such as perhaps private real estate vehicles. Um, and as the bigger you get, the more your options are. And that helps basically mature the, the asset class.

Monem Salam:
Motasem, is there like a best practice that you've seen where, you know, after a certain asset level, you're like, you know what, I think now we're ready to have an advisor come in and help us to manage this money. Is there like a cutoff point that you've seen that works really well for organizations?

Motasem Benothman:
So it's very subjective, of course. Um, my, our general thought is kind of when you're in the million-dollar range, that's, that's where kind of having an RIA or other type of asset manager may make sense to at least start really considering. Um, and it does kind of depend on what asset allocation you seek and also what your anticipated growth of the endowment is not only from investment growth, but in terms of new capital that comes in. And then also it depends on the skill sets you have in your endowment committee, right? So if you're unsuccessful in building a very talented, uh, endowment committee, then perhaps getting an asset manager should be done even earlier than that. Um, so, so there are some, some variables that factor in, but just kind of rough. Roughly million dollars is what I would say is kind of a…

Monem Salam:
And a lot of times, because these are nonprofits, they're really run on volunteers and stuff like that. Um, what do you think about the roles, the segregation of roles between, let's say, the investment committee and those that are out there seeking the money for the for the for the endowment, those types of things. Can they be the same? Should they be the same? Or really should they, you know, really should keep them separate?

Motasem Benothman:
You're talking from a development fundraising standpoint.

Monem Salam:
For example, is, you know, nobody. What will happen is, is that, oh, you guys are this for group of people are in charge of the endowment. Well, they're going to also be in charge of raising the money. You know, they're going to be in charge of investments of the money, reporting of the money, all of those things, which sometimes becomes too much for people. Right? So I'm not sure if you've had that experience or not.

Motasem Benothman:
Yeah, I think they should be separate. I think usually the fundraising should be managed by the organization's development staff. And um, that that does create an extra burden for that staff because they already have an annual fund that they're worried about, maybe a capital campaign. So adding a, an endowment component to that could spread them a little thin. But I think it's still they have the skill sets, they have the relationships, they have the tools. So it makes sense to, to keep it in their forte. And then separately, it also makes sense for the endowment committee to be focused on skill sets related to investing and not worried about the fundraising and piece of things.

Monem Salam:
Yeah. I want to circle back to the idea of you talked about it. It's, you know, the endowment is something that's in perpetuity. So it's a really, really long-term kind of mindset you have to have when you're making these investments. Um, but at the same time, uh, you know, it's more a matter of like, so if that's the case, you know, one could argue that because it's in perpetuity, why don't we just invest it in the most aggressive, uh, type of investment? Because even if it goes down, you have time on your side, you're adding more money to it and it's going to be lasting forever. So even in the early stages, um, you know, what, what do you say about like the return profile or the risk profile? But secondly, what I've, what I've noticed a lot of younger endowments do is really, you know, one or two years, they have really good performance and they're touting that performance for, for, to, to be able to raise money. Um, for me, that's not a good strategy. Um, you know, it's, that's, that's the performance on a short term, one year, two-year basis is either it's a hit or miss. It's much more long term. So what do you think about that aspect of really trying to promote the investment return rather than just kind of the idea of building the endowment for the long term?

Motasem Benothman:
Yeah, I think so. When you're managing money based on perpetuity, it affords some, some luxuries, uh, that influence investing decisions. One would be there's a high tolerance for illiquidity, right? So investing in things like private funds, whether it's venture capital, private equity, real estate, if those funds are locked up for ten years, for example, that's not a problem for, for an endowment, right? For you personally, maybe that's an issue. And so, so naturally in the market, what happens is there's a Basically an illiquidity premium that applies, right? So something let's say something is, is worth one hundred dollars. But because it's illiquid, it's trading on the market for ninety-five dollars. So the endowment is therefore able to invest at that ninety-five dollars price for one hundred dollars value by taking advantage of that illiquidity premium. Um, additionally, uh, there's a tolerance with the perpetual model for volatility right there. It's okay for things to basically have some cyclical performance because you're focused on a much longer time frame. Whereas if you needed the cash, if you needed, if you needed to do, uh, significant withdrawals within the next year or two, then the, that volatility can be very painful and you can't make certain investment choices. However, that volatility does not mean you can afford high risk, right? The volatility and risk are very different. Um and another thing to think through is when you have an endowment has an asset allocation, ideally you are rebalancing as the value of each of those allocations goes outside the boundaries of, of what you've defined, right? So let's say, let's say you invest seventy percent into equities and then stocks. Stocks have gone down. So now it's sixty percent. So now you do rebalance and you basically buy more stocks so that you're back up to the seventy percent. So effectively what you're doing is buying low and selling high. And that that helps from a mean reversion standpoint for long term investing.

Monem Salam:
And also as you're raising as the development department is raising the money, I mean, you could be coming in at different levels and maybe, you know, you're, it's almost like your four one K, right? You have the actual allocation that you've made based on the market's movements. And then every month that you're putting in, it's your, it's how much of, of, of each asset class you're putting it into. So I might have a seventy thirty mix of every time new money comes in, I'm going to split it up seventy, seventy, thirty. But my actual portfolio could be seventy-one, twenty-nine or seventy-five twenty-five. And then you're back adjusting it once or once a year basis and saying, okay, what does it look like now? How do I want to change it? Those types of things, right? Um, which brings up a good point about, about this. Um, I, I'm sure, um, you, if you're familiar with an investment policy statement, um, maybe we can talk a little bit about how important that is for, uh, for an organization, even if it's a small one, how important it is to be able to create an IPS or is that something that maybe can come later on down the road when the endowment gets bigger?

Motasem Benothman:
Yeah, I, we, so we think that's a huge, hugely important piece and is actually the kind of like final deliverable under the for the Islamic endowment advisory, uh, consultations. So we start, we start with our consulting to start talking through and decision making around all the components that eventually make their way into the IPS. Um, so that's an important part of governance. And I think any endowments has to have an IPS. And I immediately, I immediately question kind of like the governance of, of an organization and their endowments if they do not have an IPS.

Monem Salam:
So tell us a little bit more about the IPS. What does it have in it? What can you leave out of it? What, what what's your recommendation?

Motasem Benothman:
Yeah. So one would be about the spending policy, right. So when our distributions made and what is the size of those distributions. Right. And this is this is this conversation is really an important one to kind of validate whether the organization is thinking long term or not. Because sometimes people are establishing endowments and they're getting, they're already getting excited about what distribution will be made next year. Right? And that's okay if you're starting off with a good size healthy endowment, but you usually you're starting off with a smaller endowment and planning to grow it over the years. So in that scenario, you ideally want to delay those first distributions as much as possible. So what we've done is with our clients, we basically have built out like a spreadsheet model that will forecast out for the next forty or so years. What you input data such as what is your operating budget, what is your anticipated growth of that operating budget, what your anticipated growth? What's the current amount of the endowments anticipated growth of the endowment? And then you basically put in variables of what the distribution is. Generally it's three to five percent, uh, with probably four percent being most common. And then when that distribution begins. Right. And what you'll find is that by just pushing off that distribution for ten, fifteen years, you can see material compounding benefits, right? So there's, there's usually a bad dialogue with the organization of, can you afford to basically delay that as long as possible, and then establishing that parameter.

Monem Salam:
Motasem, the IPS also has more than just the spending part. Right. Does it also have embedded like, okay, this is going to be the asset allocation, those type of things. But then also from that, how often can you change it? Is it something that's, you know, I'm assuming it's not a permanent, you know, document that you can't change. So how often should that be revisited and those things.

Motasem Benothman:
So, so the, so generally the IPS is basically approved by the board. And then it gets handed over to the endowment committee as basically their guardrails. Right. These are the rules that the endowment committee has can play within. Um, the idea is to build that IPS so that it doesn't need to be changed for many years. Eventually things will change just because markets change. So an example would be even just by the AUM, by the by the assets of the endowment growing. Now all of a sudden maybe you can afford to have private equity or venture capital investing. So you may have started off with an IPS saying zero percent to five percent for p e VC. And then now all of a sudden, you're at X millions of dollars and you can now allocate a higher percentage. So, so then the endowment committee goes back to the board and says, we propose that you make these changes to the IPS, and then the board votes on that and then sends it back. So. Right. So the idea is you want to ossify the IPS as much as possible because you don't want material investment changes to happen just based on market dynamics, right? Like the Iran war or things like that. You don't want people just reacting on the short term, right? You build an asset allocation that that is intended to be long term and intended to survive different macro conditions, right? Whether it's recessionary, inflationary, whatever you build it to kind of endure those. And then you make modifications, I don't know, every five years or so based just on a need basis, but it's not something that's intended to be done frequently.

Monem Salam:
Yeah, that's a good point about like having that separation of who's actually creating the, the IPS and then who's actually, you know, using that IPS to be able to make decisions and those type of things, which is really great. Um, so, and then what, what other components would, would be in the IPS?

Motasem Benothman:
Uh, another example would be, uh, Sharia compliance, right? Defining what that means for your organization. Uh, a lot of, uh, a common one we, we share with organizations is the o fi standards. Um, so some organizations may have something more unique. So regardless, whatever they decide, it should be documented in the IPS because then that forms the investment restrictions for the endowment committee and or the, the asset manager.

Motasem Benothman:
Do you, uh, do you feel, um, you know, is it is enough in the IPS to say we're only going to make investments in those Endorsing those investments that have a Sharia board? Or is it because if you get into this idea, it has to be AAOFI. You might get more restrictive as far as your choices of investments are concerned. So how do you kind of balance that between having your own kind of set of standards versus saying, you know, what I'm going to the standards are that as long as they have an approved board that audits it as the investment company, then don't. Okay. Okay. Being able to do that.

Motasem Benothman:
Yeah, that's it's a very subjective decision there. It really depends on kind of the, the culture of the boards or the organization and also their kind of the, the strictness or the level of adherence that they, they care about both for them as well as the donors. So, um, so that's very much an individual case basis.

Monem Salam:
Okay. And then now if we can talk a little bit more about like just the reporting aspect of it. Um, you know, like when, when, when, just like every other human being, you know, they'll be touting it if the returns are really good. Um, but also then maybe kind of just hiding a little bit of the returns if they're really bad. So how often should there be some financial reporting going on to the board, obviously, but then also eventually to the, to the to the donors and the beneficiaries. Is that the responsibility of the investment committee or the board? Those type of things.

Motasem Benothman:
Yeah. So for the endowment committee should be meeting quarterly and reviewing performance. Right. So they're overseeing the investment decisions that have been made and or possibly overseeing the asset manager if there is one. Then the endowment committee should be passing along reporting to the board at least once a year. Um, and you could do more if appropriate for your organization. It depends on the board's kind of how astute they are in terms of investing and things like that. Um, and then as far as donors go, that's, that's a little, um, that's also very unique to one that's very unique to the organization and the donors themselves. It's so reporting even something as simple as the size of the endowments, there are some donors may see that as a great thing. And hey, now I want to donate more. Others may see it as, hey, you have a lot of money. I don't need to give you anymore. Right. And so an organization needs to kind of, they're going to have the best feel for their donor base or their member base and determine from that, like, okay, what level of transparency makes the most sense for my audience. What I see most often is that endowments details are kept within the organization, but then shared, uh, individually or on a need to know basis with, with donors when it comes up or if they request probably a little more proactively with larger donors, especially if you're trying to raise money from an endowment to afford the endowments, then then more transparency happens during those campaigns. So definitely there's a lot of variance in that depending on the community.

Monem Salam:
What are your what are your thoughts about promoting the rate of return? What investments are in that? Is that really something that the. It should be. It should. Should that be public information or should that be kind of, as you mentioned, one on one with a donor or just basically tighten it within, within the board?

Motasem Benothman:
Yeah. So I generally would encourage share, only share when needed. Don't volunteer extra information just because it's, it's very easy, easy to find community members that are very subjective to say, oh, why are you doing that? Or, you know, okay, you got eight percent, I got ten percent. Why are you underperforming? Or, um, what? I don't like this particular vehicle you've invested in. This doesn't make sense because, you know, AI is going to everything should be in AI or nothing should be in AI. There's always going to be someone arguing and you don't want to get into those, those detailed discussions that, you know, no one wins with those conversations. And another thing, by the way, as just a tangent here when you're thinking through performance. So you have to look at expected returns and then uh, inflation and then fees and then all those components. So you basically take expected return. So let's say you're assuming eight percent returns, right? And then if you have an asset manager, they're going to have a certain fee structure. If you don't that's a zero. But then there's inflation. So whether that's two and a half two to three percent. So now your eight percent is five percent. And if you're distributing five percent as you're spending policy now, you're basically breaking even, right? So your endowment is never actually growing unless you happen to have happen to be fundraising for it and adding to it. So this is where kind of it goes into the calculus of when to make distributions, how much effort to put into raising more money and the, types of thing, the asset classes you're investing in, right? So inflation is kind of like this hidden factor that that needs to be kept in mind as, as your, your numbers kind of look, look attractive to you and you think you're netting out positive, but you may not be.

Monem Salam:
I want to go back to one point, which is the quarterly part of it. When an endowment is small, um, you mean is it still important to do the quarterly or are you just saying that now as you're small, to be able to build good habits for the long run about doing that? I mean, it's really important to have quarterly meetings because as you mentioned, small organization with small endowments means a small amount of manpower that can actually do the work. So what are your thoughts?

Motasem Benothman:
Yeah, I think, um, so I'm on the boards of, of an organization that recently launched, uh, I'm on the endowment committee boards and the endowment committee of an organization that recently launched, launched a smaller endowment. And, uh, we, we had our first, the endowment committee had a first long meeting to discuss asset allocation, and we all agreed upon. And part of that conversation was also this pool of money we have. How quickly do we deploy it to. Right. Um, but then then we talked about, all right, let's meet again in three months. And a comment was made in the meeting of like, okay, I'm not sure we're going to have anything to discuss then. Um, which, which is a fair point, right? I, I think what will likely happen is in the first one or two meetings after this one that we had, there will probably be some discussion on potential tweaks, like maybe, you know, some of us may have may be researching other vehicles and, or learn more information, such as, I had a meeting with your participation fund manager. Right. And so I learned more about that. So but at some point with the current size, it is likely that we will just decide to skip certain quarterly meetings, right? So whether it be every other one or whatever it may be, and that's okay. But the idea is to kind of put it in the calendar or have that reminder set. And then if you decide to skip it because there's nothing new or material that's okay.

Monem Salam:
Mhm. Um, and then also just now, now we're talking about the organizational structure and transparency. Um, how do you, is the IPS where you actually handle conflict of conflicts of interest? Or is that something that's done outside? And what I mean by that is, you know, maybe, um, you know, you're, you're an advisor in the local community and then you happen to be on the endowment committee, and now you're the one advising the board on from, from the fiduciary level. So, um, what, how do you kind of frame conflicts of interest and where, where, where does that policy lie? Is it within the IPS or somewhere else?

Motasem Benothman:
Yeah. So, so the, the policy of conflict of interest will be defined in the IPS. However, what's more important is the behavior right. Of, of leadership. Um, that means leadership at the board level as well as leadership of, of the committee level just because. So conflict of interest, I think is, is an area that our community has a weakness in. Um, and it's especially sensitive and prevalent when it comes to managing ascites. Right. So, uh, a common example is organization is now starting to, is trying to build their endowment committee. So they think who, who in their community has basically experienced managing money, right? And RIAs asset manager, those are the first people that come to mind. Now, if that aria is seeking to earn that mosque or organization as their clients, there's a conflict of interest there. If they become part of the endowment committee, right. So you want to you want to one, make sure that any participants in the committee or board signs an annual conflict of interest letter so that it's clearly, uh, written out, uh, what they're agreeing to, and then also stipulate what their conflicts may be. And two, just in terms of how you manage the meetings and discussions, Um, it's important to basically not, not allow certain things to transpire, right? So if, if a person is, it's easiest to avoid problems if you address them upfront, such as if you're trying to recruit an asset manager to the committee, you tell them up front, look, you're we will not be able to sign with you for business. Uh, unless there's some, unless there's some way where you can waive the fees or something like that. But if there's a financial benefit to you, we, we cannot basically also have you as a decision maker, right? Um, so that's when, you know, there's a potential conflict of interest up front if there's a conflict that arises later on. So let's say, for example, two years into an endowment, you now want to pursue a product and a member of the committee happens to, to have a fund for that product. At that point, you need to kind of, uh, work with that person to assess that either they step down from the committee, or they find a way to still pitch their products without financial benefit to them or something else. But the point is, you don't want to get into a point to where people are kind of pressured to pick something that is, um, that is beneficial to, to a member, um, that may not be the best decision for the organization. And it also puts the organization at risk because there are basically some, some rules from a nonprofit standpoint that, uh, you have to, you basically have to report some, some transactions that would be benefiting, uh, the decision makers. So there's a lot that goes into it. And our community, unfortunately, is very prone to this. So you have to be very diligent to, to avoid that.

Monem Salam:
I really appreciate that's, that's some that's some great advice. Um, well, now let's kind of step back a little bit. And I know you have a lot of experience on not only on the boards of endowments, but also advising them and those, those type of things. Um, can you share Maybe let's say the top three mistakes you've seen like young Islamic organizations make when it comes to managing their endowment.

Motasem Benothman:
Um, maybe one or two, maybe not three. Yeah. No. Okay. So I think the biggest mistake is, is tapping into the principle, right? So this is where kind of, uh, the whole quasi endowment thing happens. A very common anecdote is a Masjid either gets a large donation or has a surplus. And now they have, you know, one hundred and fifty thousand dollars in the bank. And they say one hundred of that is now their endowment, right. Um, but it's very unofficial. And then what happens is six months later, the, the Masjid bathroom needs a remodel and they need seventy five thousand. So they tap into that one hundred, right. Um, that is not an endowment that like it needs to be very clear, uh, both explicitly as well as culturally that once something is in, once assets are in the endowment. That principle is to never be touched. Like never. And that's, that's something that that there needs to be strong consensus on so that the current people basically adhere to that, but then also needs to be documented via IPS and some other things so that future staff and future board members and committee members also recognize.

Monem Salam:
So let me stop here for a second. So let's talk about this for just for a minute. So, you know, if you get to a point and I know this, this, you know, inshallah never happens to a masjid or an organization, but sometimes you have these organizations that begin to struggle, right? And so they're having a tough time, maybe making payroll or, um, or growing it or fixing the bathrooms, those type of things. Um, and so now you have this endowment for the long term, but the, the organization might not even be around for the long term if they don't fix whatever's going on. So have you seen any kind of best practices, like, for example, you know, can you borrow from the endowment and then eventually pay it back? or is this like you just say, okay, forget it. You know, we're in survival mode. It's triage. We're just going to take it from the endowment and just use it because we might not even be around if we don't. Is there any, any anecdotal stuff you have on that end?

Motasem Benothman:
I, so I haven't, um, I haven't, I don't have direct experience with those types of situations. Um, however, uh, the endowment should not be seen as a crutch in these circumstances, right. So an example would be when, when, uh, when we're advising clients on, on endowments, we're recommending that before they even consider the endowment, they have a certain runway in terms of reserve funds, right? Because you need to be ready for a rainy day, or every organization is going to have financial constraints and so forth. So, so you have that. You also need to factor in kind of like how sustainable is your fundraising? Also, how flexible are your operating costs, right? So if you end up having a very bad fundraising year, are you able to reduce staff or reduce other expenses and things like that? So these are all factors into like how much your reserve, how big your reserve should be. And then the endowment needs to be on top of that, right? Um, so the general idea is in a scenario of a financial crunch, the endowment is not considered as an option. Right. It's not. So borrowing from it should, should really not be a, a something that's discussed. Obviously, if you're at the point where like you're literally about to shut the door, then, you know, then think arguably everything's on the table. But like, it shouldn't mean the thing is, like most organizations are almost always facing some kind of financial constraints and you never want the endowment to be thought of. This is actually one of the advantages of having the endowment managed by the committee and not by the board, because the board is always discussing like, okay, how are we going to cover this one hundred K shortfall, whatever. And then you can't have an item two on the agenda of, hey, we just got one hundred K in returns in the endowment or whatever. So that's it's too hard to switch hats, uh, like that. So having separate meetings and separate people from the, for the endowments is healthy in that sense. Um, but organizations find a way and, uh, but the endowment is, is not arguably the endowment should help make things easier in that when you talk to people for these, this emergency situation and you're asking the community for loans or whatever it may be, uh, knowing that there's an endowment should give them a little more comfort that there's, there's some sustainability with organization, and it's just a temporary thing that they need to resolve.

Monem Salam:
Any other common mistakes that you can think of that, um, that come up?

Motasem Benothman:
Yeah. Uh, another would be just the timelines are not long enough, right? Going back to kind of the, the perspective of thinking, you know, five years versus one hundred years and so on. So it's important for people to think multi-generationally for the endowments. And that changes some of the decision making. And then lastly, is what we covered already is conflicts of interest. That's just a real a really pervasive problem that that really needs to be managed well.

Monem Salam:
That's great. Now those are, those are really great ones. Um, and then the other one, um, let's kind of talk about more big picture. You know, I think globally, um, you do have like a fairly large amount of money. We're talking hundreds of billions of dollars in different type of account or endowments, um, that are there, whether it be Malaysia or any other Muslim country that's there. Right. So there's two questions that I have, right? One, number one is that, um, over the years, the endowment structure in these Muslim countries has become stale. Um, meaning that, you know, it's not really growing a lot. It's basically, you know, there's no professional management, those type of things. So we talked a little bit about how to prevent that from happening, which is basically having the IPS and good governance and those types of things. But the second thing is, you know, I know we're a very young community, but how do you feel because you're in the space. How do you feel we can get to scale? Uh, when, when it comes to endowments, when, when is it going to be that, you know, the masjid or the organizations have a large enough endowment that not only is that endowment being invested, but also you can take some of that endowment and use it for the operational part of the organization to be able to function.

Motasem Benothman:
Yeah. I would say, um, it's probably two things that will happen to enable this. Um, one is as our organizations transition from, uh, being managed by first generation into second and third generation, uh, Muslim Americans. Um, and I don't mean this, uh, negatively towards first generations. They obviously built foundations for us in under incredible, uh, circumstances. And we're here today due to due to their initiatives. Um, but now, now kind of like try to take things to the next level. I think second and third generation American Muslims are going to be more, um, more likely to, to think through some long term, uh, initiatives such as endowments. And I think that's, that's going to help significantly. Part of it is because they're, they're going to be looking more at other organizations, non Muslim organizations in, in America and see kind of some of those differences. Uh, the other thing I think that's going to help that will likely be an organic thing is the wealth distribution in our community. I would argue originally, like when most of our masjids were built, the community was made up mostly of like doctors and engineers. So just a lot of like middle income Muslims. And what that meant was a lot of the donation money was pretty well distributed across the community. Okay. Which is a great thing. But what it also means is that the donors themselves had little voice because let's say, you know, as an example, everyone's giving a five or ten thousand dollar check now with kind of the startup worlds and whatnot. We, we, we have, we have a lot more, um, Muslim Americans that are, have founded large startups and done exits and whatever. So basically there's, there's this, there's a growing wealth disparity within, within our community. And normally that conversation is viewed as a negative. But in this context, I actually think it's going to be a positive because our organizations are going to be supported by fewer very large donors, and those donors are going to have more say in influence on the organization, and they thus will be able to leverage that money to force growth in the organization.

Monem Salam:
That's an interesting point. I never thought of it that way. But you're right. I mean, it's almost like it's almost like saying, look, there's a tidal wave of money that's coming through, right? Because of the intergenerational wealth transfer and that type of thing. So, you know, I guess it's up to the organization to say, look, if we want to take advantage of that, we're basically going to be competing for governance for, you know, endowment structures and those type of things. And then because like you said, if a person is like, okay, if I'm going to be donating, you know, I just got my iPod, I'm like my company iPod, I'm going to give ten million dollars. They're obviously going to be wanting to go to an organization that's already has the right structure in place, rather than trying to create a structure just so the money could come in. So it's really trying to say that, okay, you know, Mr. nonprofit or non-profit organization, get ahead of this wave and really have your ducks in order so that you're ready to be able to take that those that money coming in.

Motasem Benothman:
That's absolutely correct.

Monem Salam:
Yeah, that's, that's…

Motasem Benothman:
Hopefully those large donors will be able to kind of see the gaps or areas for improvement for the organization and create restrictions that that basically force that to be resolved. Right. So like when I was at New Horizon Irvine Islamic School, we had a very large donor that basically said, yes, I will, I will make a large contribution to your organization, but one, it needs to be matched. So that forced us to really step up our game, uh, in terms of development. But two, he said, half of my money needs to go to the endowment. And that that made an incredible difference for us to actually get off zero from the endowment. It created incredible momentum where we got a lot more money separate from him into the endowments as well. And like now it's now it's in a significantly greater place thanks to that, that that vision basically, I think overall in our community, we're, we're all very generous, uh, but we tend to not leverage our donations and not make them restricted, which is what an organization wants, but sometimes it's better for the organization to actually restrict it and force behavior.

Monem Salam:
And then also, just as we're kind of coming to a close. One question I did have for you is, you know, you have a masjid that probably was built, let's say ten years ago, fifteen, twenty years ago. Um, and there's just starting on the path of the endowment, you're like, well, okay, we have a donation one hundred thousand. Um, but the land value of that masjid is huge, right? They, they probably bought it for, let's say, you know, a million and now it's worth maybe much more than that, especially where you live in California or where I live in Washington. Um, should a masjid actually consider land value of the masjid an endowment as well to be able to say, well, I have a much bigger not for the sale of it, obviously you don't want to sell that property. Um, but more from the, just the breadth of, you know, thinking to yourself, wow, actually I have a bigger endowment than I thought I did because of the fact that there's value in the actual measure itself.

Motasem Benothman:
Yeah. It's a, it's a debatable question. Um, there isn't a, a firm answer to that. What we advise is um, if the property is income generating, which usually means if it's a property that you are not using for your own operations, then yes, count that as the endowment, but the property that you are actually using, like the message itself, for example, then no, do not count that as part of the endowment. Okay. Um, but what you can do though is if you're creating a separate entity, then you can merge them together in terms of like asset protection for that entity, right? So you can have, you can you have one entity as the message or whatever. The organization is a separate entity that holds the property and the endowment. So those assets are protected from, from the, the operations of, of the organization. So even though that property is not considered part of the endowment, it can be part of that same entity. Yeah.

Monem Salam:
Well, listen, thank you so much. I wanted to I just want to leave you just ask you one question, which is, you know, how do people get a hold of you? Um, how do they take advantage of the, your, the services that Islamic Endowment Agency is providing those type of things. The thing would be great for people to be able to reach out to you directly as well. So.

Motasem Benothman:
Yeah, sure. Thank you. Uh, so, uh, our website is Islamic endowments advisors dot org, and our email address is info at Islamic endowment advisors dot org. Um, so yeah, we're happy to, to speak to any organization that's looking to create their endowment or needs assistance with their existing.

Monem Salam:
And you have capacity to do more. I guess I'm assuming like you…

Motasem Benothman:
We have capacity. It is, it is just a team of three. So depending on influx, that capacity is limited. Uh, but we are also, um, it's a, it's basically a no charge, uh, engagement. We're not financially benefiting from this. We just want to improve our organizations.

Monem Salam:
No, it's great. Thank you so much for not only doing this for the, for the Muslim community, but also coming on the show and kind of explaining exactly what are the best practices I hope people do take advantage of the service that you have because you have a wealth of knowledge between you and the other team members as well. So thank you very much for your time.

Motasem Benothman:
Hamdullah and thank you and Saturna for having Sharia compliant products and for this podcast series.

Monem Salam:
Awesome. Thank you.

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