2022 Tau Beta Pi Convention
Constitution Amendments Approved for
Consideration for Ratification by the Chapters
Tau Beta Pi—The Engineering Honor Society
Presentation Overview
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Chapter Ratification
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 1 Overview
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 1 Changes – Article XI
SECTION 5. Program Directors. The Program Directors shall be a Director of Alumni Affairs, a Director of the District Program, a Director of Engineering Futures, a Director of Fellowships, and a Director of Rituals.
(a) The Director of Alumni Affairs shall manage the Alumni Affairs Program, stimulate and maintain alumni interest and support for the Association, to encourage the formation and support the operation of alumni chapters, and to represent the alumni at the Convention and before the Council.
(b) The Director of the District Program shall manage the District Program and support the District Directors in assisting and developing chapters in each District.
[underlined words added; subsequent subsections renumbered]
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
2022 Convention Committee on Bylaws
Committee Presentation Slides
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
7
Background
Tau Beta Pi—The Engineering Honor Society
8
Options
Tau Beta Pi – The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Cons:
Pros:
9
Considerations
Tau Beta Pi – The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
2022 Convention
Director of the District Program Amendment
Discussion and Decision
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 1 Convention Discussion
R. Zhang, TX A, reviewed the proposal to make the Director of the District Program a permanent position. The District Program was first formed in 1978, then the director position was removed in 1991, then added back in 2016; the first couple of directors were unable to get enough data collected to get the role off to a good start, so the trial period was extended in 2019 for another 3-year period. Based on input from numerous District Directors and Executive Councillors, the committee believes that the best course is to make the position a permanent position. This position creates a good point of contact and responsibility for the District Program, and was helpful during the COVID-19 pandemic, for example, to coordinate efforts across districts to work as effectively as possible. In addition, this new position would allow for the Executive Council to contact one person to discuss the program rather than working directly with all 16 districts; also, the permanent role would provide the Director with a vote at the Convention. Finally, this is a volunteer position, so there is no additional cost to the Association to make this a permanent position.
R. Zhang moved, seconded by W. Crain, MS B, that the amendment be adopted as presented.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 1 Convention Discussion
E. Westfall, Puget Sound AC, asked about the process for identifying and appointing a Director of the District Program and the length of the term. At the direction of the chair, Executive Director Gomulinski shared that the Executive Council identifies candidates and makes an appointment which can last up to three years.
N. Bussett, D16 Director, noted that Article X, Section 5 (l) states that the Executive Council’s responsibilities includes “Determining the number of districts and the chapter assignments thereto and set policy for the District Program.” He asked if this was considered as to how these responsibilities may change with this motion.
A. Brunton, AZ A Advisor, asked how many District Directors were consulted by the committee regarding this motion, and whether the Chapter Development Committee was consulted in the committee’s deliberations. R. Zhang noted that seven District Directors, two Executive Councillors, and one Chapter Development Committee member were consulted.
Responding to a question regarding the current number of District Directors, S. Forkner, Director of the District Program reported that there are 49.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 1 Convention Decision
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Overview
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Changes – Article XIII
SECTION 8. Investment Options. The trustee and the Trust Advisory Committee shall invest the funds by purchasing some combination of:
(a) Shares of fixed income and equity mutual funds,
(b) Shares of exchange-traded funds and real estate investment trusts,
(c) Preferred and common stocks,
(d) Money market funds,
(e) Corporate bonds and debentures,
(f) Certificates of deposit, and
(g) Direct obligations of the United States Treasury and of legal agencies of the United States Government., and
(h) Private Equity Funds representing multiple Private Equity Fund Managers.
[struck words deleted; underlined words added]
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
2022 Convention Committee on Financial Affairs
Committee Presentation Slides
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
How The Trust Works
17
The Current Situation
18
The Solution
19
Our Job Today
20
allows the use of Private Equity funds
Morality
21
Commitment to Integrity
22
Commitment to Integrity
23
Commitment to Integrity
24
Principles for Responsible Investment
25
Supporting Action
26
The Risks
27
Vanguard and HarbourVest
28
Benefit Assessment
29
Proposed Strategy and Benefits
30
Risk Assessment
31
Timeline of Amendment Process
32
33
How a Yearly Vintage Works: The J-Curve
We (the limited partner) agree upon a set dollar amount which Vanguard asks for incrementally over several years.
Purpose of the TAC
34
Trust Advisory Committee (TAC)
Team Introduction
35
Harry W. Lange, MI Z ’75
Team Introduction
36
James W. Johnson Jr., NC A’77
Team Introduction
37
Dave A. Liu, PA D ’93
Team Introduction
38
Yung B. Lim, NJ D ’87
Team Introduction
39
Brent S. Beardsley, TX D '93
Trusting the TAC
40
2022 Convention
Private Equity Amendment
Discussion and Decision
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
W. VandenBos, KS G, discussed the proposal to allow private equity as an allowable investment option as proposed by the Trust Advisory Committee (TAC). The trust has a limited set of allowable investment options, and projections show that the current options may not allow for the growth rates that TBP would need in the long term to fund operations. Private equity would allow TBP to invest in individual companies which are not available in the stock market. Private equity funds are built for returns greater than the market rates, but they require around 10 years to see initial investments pay off and a significant initial investment is often required. TBP is in a position to be able to make these types of investments and is investing for the long term. The TAC provided information from Vanguard, who invests in private equity through a firm called HarbourVest, and the data shows that private equity consistently outperforms the equity markets and the stock market in general. HarbourVest’s fund in particular has outperformed other investment types over the last 20 years. The plan from the TAC is to invest 20-30% ($6-9M) in private equity over the next 5 years, with returns expected in approximately 10 years. Overall, portfolio earnings would be expected to increase 1-2% over today’s rates, which would be significant. A 3.7% return is expected for private equity over the long term, vs. 2.9% for a 70/30 stock market split portfolio.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
W. VandenBos moved, seconded by J. Bartman, CA A, to adopt the proposed amendment as presented. W. Vandenos noted that the committee is confident that this would be a good investment.
Y. Zhong, IL G, shared a concern on the change in risk which would happen with this and also asked about how liquid the private equity assets would be; he also asked if Vanguard would profit from this strategy change. J. Bartman, CA A, noted that HarbourVest provides diversity in its investments, since they invest in a fund of private equity investments. He also noted that Vanguard earns a portion of TBP’s investments, so their motivation for higher returns is aligned with our interests. He also commented that liquidity would be reduced with this investment, but since this is a long-term investment, that should not be a concern.
A question was asked as to whether we would be involved in buyouts and layoffs as a result of private equity investments. A committee member commented that in the long run, while buyouts and layoffs are unfortunate, this actually would help to create and save jobs by supporting good companies.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
M. Thomopoulos, MI I, asked why our current strategy will not be successful in the long run. P. Esswein, WI A, noted that the current rate of return is expected to be 4-5% for the next few years (down from 7-8% in the past), which combined with new chapters joining the organization, could cause expenses to outweigh income in the long term.
N. Turco, D1 Director, asked how our contract would be structured with HarbourVest. J. Johnson, TAC Chair, noted that HarbourVest would have a fiduciary responsibility to Vanguard, who contracts directly with us, so that should be sufficient.
S. Caruthers, Ohio’s North Coast AC, noted that a previous answer about multiple managers allowing for reduced risk may have been misleading; we will actually be taking on more risk, with the intent of gaining additional returns.
O. Convery, CA S, asked if there is a way to have insight into the firms that HarbourVest is investing in, to ensure that they align with our values. J. Johnson noted that there is not an easy answer; they do act as a bit of a black box for us, since we would be a limited partner, but there are 3rd party companies hired by Vanguard who would monitor them and check their investments.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
W. Andrews, WA B, asked about the committee’s proposal to invest and not see a return for a length of time, wondering if as we invest an amount into private equity, what type of return we get until the returns start showing up in several years and is that significant. J. Johnson, TAC Chair, noted that we would invest money over a 3-5 year period of time; we would invest money each year and a little money would start generating returns in years 4-5; we would not expect that there is an impact to the amount of money we have for the Association to spend during the short term. We would expect that the returns overall would increase starting in years 3-4.
C. Boixo Fernandez De la Cigona, CA E, asked if TBP only spends money from the trust or if we have other resources to tap into. C. Gomulinski, Executive Director, noted that we have 2 bank accounts for our operating expenditures, with $300K-$1M in each one. The rest of the trust is in publicly traded funds with Vanguard, except for 3-5% which is kept in a money market account so that we can easily access it without having to sell investments at an inopportune time.
N. Turco, D1 Director, raised a point of inquiry asking about accounts where we need funds to stay liquid, for example to spend money to support expenses covered by chapter endowments. C. Gomulinski noted that TBP’s investments are part of a big pool which is invested in general, but we do not distinguish which fund (for example, Stabile Fund, Chapter Endowment funds, etc.) are in specific types of investments.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
B. Johnson, Pittsburg AC, asked if we have more than 20 years of data from HarbourVest to review; that data is not available.
The Convention committed the proposal back to the committee for further discussion and debate resumed on Saturday afternoon.
W. VandenBos, KS G, shared that TBP has investments of $30M, which is invested 90% in mutual funds and 10% in stocks; the fund is overseen by the Trust Advisory Committee (TAC), which is highly regarded and qualified to manage this fund, in partnership with Vanguard Institutional Advisory Services (VIAS). The intent is to keep the $30M fund in place and generate earnings on the fund. The current trust spending guide is 4.5% of the 84-month rolling average of the fund. In past years, mutual funds have returned 7-8% which is great, but returns are expected to be in the 4-5% range over the next 10 years, which may not be enough to support a 4.5% spend in future years, and therefore money would have to be drawn from the $30M, which would not be good, since it could affect the ability of the organization to run in perpetuity.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
W. VandenBos continued that another alternative is to increase the returns of the trust, which may increase risk, but the committee feels this can be managed and would be the best alternative as recommended by the TAC and the unanimous sentiment of the committee. The Financial Affairs Committee will not be investing the money; the TAC will be responsible for this. The question is whether we want to give the TAC the tools to make these types of investments, if appropriate.
J. Deahl, MD G, apologized on behalf of the committee that they did not adequately address concerns about ethics with these new investment types in its earlier presentation. He noted that with private equity investments, it will be ambiguous as to where the money will exactly be invested; however, we will have transaction information on where the money is once it has been invested, and we also have past information regarding investments by HarbourVest. J. Deahl shared Vanguard’s and HarbourVest’s corporate philosophies, and noted that HarbourVest is a signatory on the Principles for Responsible Investing and commits to high standards for investing. Mr. Deahl shared information on companies who have received investments from HarbourVest. He stated that the committee feels it is important to invest in new companies to further the growth of engineering careers and jobs.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
J. Bartman, CA A, presented an overview of the qualitative risks and quantitative benefits of private equity. Vanguard has shared five potential risks of investing in private equity. Market risk is an issue for both private equity and public equity; in addition, private equity investments will be required to have been supported by several fund managers (up to 1,500), which will help to reduce risk. Another risk is that money cannot be withdrawn in the short term, but this is manageable because we are interested in long-term investments. Funding liquidity is also a risk, but we will have a bond arrangement which we will be able to draw from, to pay for investments as needed. Returns cannot be tracked on a daily basis, but it will be trackable in private equity on a quarterly basis, which should be adequate. Regarding selection risk, the actual selections will be made by Vanguard and HarbourVest; these companies are very well regarded, and HarbourVest was selected as their partner after a very rigorous review process which started with an initial review of over 200 firms. So, there are some risks, but in comparison with the potential returns (12.2% annualized returns based on 20 years of history vs. 3-4% for stocks and mutual funds). There is still risk, but the funds being considered have a size of over $3B, which shows that this fund is trusted. If this fund is used, we expect to see a 1-2% increase in portfolio earnings once investments are fully in place and applicable taxes have been paid.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
J. Johnson, TAC Chair, shared information regarding risk vs. return of a portfolio consisting of a 70/30 mix of public/private equity vs. a portfolio of 100% public equity. Private equity reduces likelihood of an annual loss and reduces the probability of a 20% loss from 16% to 12%. The risk reduction is due primarily to the fact that private equity is not correlated with the public markets, so they go up and down based on different business cycles. If the Convention approves the proposal and the chapters ratify the amendment, the TAC would develop a proposal for investing in partnership with Vanguard so that the investment could begin as soon as 2024. We would expect to buy one partnership each year, and returns would begin to flow in a few years after that. In the implementation phase, cash is invested as deals are executed in years 1-4; during years 4-7, some money is being invested but some returns are going in; during years 7-12, partnerships are dissolved, and investments are then returned to TBP.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
P. Keller, TX B, discussed the purpose and qualifications of the TAC. He shared the relevent sections from the Constitution and the qualifications of the current TAC members. Harry Lange has an MBA from Harvard, was a portfolio manager for the Magellan Fund and worked for Fidelity for 25 years. James Johnson has been a TAC member since 1994 and thus has an extensive history of Tau Beta Pi and the TAC; he also served as TBP President. David Liu has raised over $15B and was a managing partner of Goldman Sachs. Yung Lim was a fixed income trader for Solomon Brothers, and Brent Beardsley is a former manager at BCG and currently works for Vanguard. All these members are Tau Bates and volunteer their services to Tau Beta Pi on the TAC, which is an incredible asset for TBP.
P. Keller, moved, seconded by J. Bartman, CA A, to adopt the proposed amendment as presented. Mr. Keller noted that the proposal limits the TAC to only buy private equity funds from private equity firms. He commented that the delegates at the Convention are not money managers, but our role is to unshackle the TAC to allow them the tools to adequately manage our funds, and this additional option will be important in the years to come.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Discussion
S. Gwinn, NY Q, remarked that the proposal does not specifically bind the TAC to work with Vanguard and HarbourVest, which was the subject of much of the presentation; however, he trusts the TAC to make the right decisions.
C. Chase, CA X, noted that this vote boils down to a vote of confidence in the TAC and the Financial Affairs Committee.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Amendment 2 Convention Decision
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Concluding Remarks
Contact tbp@tbp.org if you have any questions.
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society
Final Reminders
Tau Beta Pi—The Engineering Honor Society
Tau Beta Pi—The Engineering Honor Society