REPORTER, one of the LC-MS house
organs, announced that the Lutheran Church-Missouri Synod Foundation (Foundation) had lost
$40 million from July 1, 1998 through June 30, 1999. As some readers may recall, Norm
Sell, alleged financial Wunderkind of Synod, resigned his post of Synodical Treasurer in
1998, only three month after his re-election to that post with the full faith and credit
of the Council of Presidents behind his re-election bid, to become full-time President of
the Foundation. As it turns out, Dr. Sell’s first year as full-time President of the
Foundation was less than auspicious. One wonders if market forces or the forces of evil
conspired to derail Dr. Sell’s efforts?
According to Dr. Sell, the loss represented a 7% decline in the market value of the
Foundation’s principle. The REPORTER indicated the Foundation was worth some
$700 million before the hit.
The hit, according to the REPORTER, was allegedly due to a heavy commitment by
the Foundation in mortgage-backed securities. Such investments were allegedly not based
upon the principles of mortgages, but on the interest earned by such mortgages. As
explained in the REPORTER, if investments were based upon high interest mortgages
and interest rates dropped (as they did until recently), debtors re-finance to lower
interest loans and pay off the principle of the higher interest mortgage. Thus, with the
principles of the higher interest mortgages retired, there is no more interest from these
retired mortgages, and investors like Sell take the hit.
To a financial neophyte, it would seem interest-based investments without an adequate
hedge is more than a bit risky, given the alleged mission of the Foundation. Of course,
the Federal Reserve Bank sets interest rates. Since the Fed is an independent agency and
secretive in it deliberations, it would seem as though interest-backed investments are a
bit speculative, since one gambles the Fed won’t pull the plug on rates during the
term of the investment, especially if hedges are not built into the investments.
Might it be, that Dr. Sell was out of his depth or that he knowingly was building undue
risk into this investment portfolio? If the latter be the case, one wonders why Sell
dabbled in high-risk investments. Indeed, the Foundation has hired an outside financial
group to not only "evaluate the fixed-income portfolio managed in-house by the
foundation", but also "to manage the portion of the fixed-income portfolio
previously managed in house by the foundation."
It does not seem exactly a vote of confidence in Dr. Sell when the Foundation has also
initiated "the process of outsourcing the investment management of the
foundation’s equity funds." With outsourcing of the management of the
Foundation’s fixed-income and equity portfolios, one wonders what is left for the
in-house boys at the Foundation? Aside from identifying new potential investors and
playing around with short-term money market investments, it would seem that the in-house
boys at the Foundation have a lot of time to go fishing.
It was nice, however, that Dr. Sell stopped short of suggesting the forces of evil
instead of market forces were to blame for the $40 million hit. In a conversation with a
source skilled in the art of mortgage investments, the source suggested, were the
Foundation part of the "real world" of investing, Dr. Sell in all probability
would have been replaced.
Of course, since the Foundation is not a part of the "real world," Dr. Sell
in all probability need not be overly concerned about his future, what with the
Foundation’s less than stellar performance during his first year as its full-time
President.
Another interesting fact brought to light in the same REPORTER article, is
that the LC-MS Worker Benefit Plans are worth $2.9 billion. The article indicated that the
Worker Benefit Plans had about 5% (or $14 to 15 million) invested in the Foundation.
According to the 1998 ANNUAL, Dr. Sell was on the Board of the Worker Benefit Plans as
well as President of the Foundation at the same time. At any rate, the net value of all
components of LC-MS surely amounts to well over the estimated $4.0 made by some observers,
perhaps as much as $6 billion.
Hopefully, the Synodical Board of Directors will initiate its own independent
investigation of the $40 million fiasco at the Foundation. If legally unable to do so, it
might be a good idea for the Synodical Board of Directors to offer changes in the Canon
Law which would allow them some meaningful oversight powers not only over the Foundation,
but also over the Lutheran Church Extension Fund and Worker Benefit Plans, as well.
Suffice it to say, if the Synodical Board of Directors takes no action, it, also, needs to
be investigated.
Convention Workbook, Reports & Overtures, 59th Regular Convention, 1995, p. 98