Description

RFP for an endowment fund manager

Overview

The DAO is seeking a fund manager to manage an endowment fund. This fund will be established from some combination of current treasury and ongoing revenue, and will exist to insulate the DAO from economic fluctuations, ensuring it can continue its core operations regardless of the wider economic outlook.

Funds will be drawn from the DAO’s general funds, currently held in ETH and USDC, as well as from ongoing DAO revenue until the fund reaches its target size. Proposals should outline how much of the DAO’s current funds the intend to appropriate, as well as what proportion of ongoing revenue will be required, and for how long.

The DAO’s accounting basis divides assets into earned and unearned income. Unearned income corresponds to funds paid for registrations and renewals that are future-dated; for example, if a user spends $100 to register a name for 20 years, after a year $5 of that will be counted as earned income and the remainder as unearned income.

Unearned income may be incorporated into the fund, but must be risk-neutral with regard to ETH. Earned income should be risk-netural with regard to USDC.

The DAO’s current balances can be viewed here; as of this writing they are:

• 13,069 ETH (~$20M) in earned income
• $3,817,067 USDC
• 18,184 ETH (~$20M) in unearned income

Scope of Work

1. Expand the endowment structure specified in the accepted proposal into an executable form.
2. Work with the ENS Meta-Governance stewards to refine the proposal.
3. Implement the proposal onchain.
4. Administer and adjust the endowment as necessary on an ongoing basis.

Selection Criteria

The endowment will need to be able to sustain annual withdrawals of at least $4M USDC without a long-term reduction in principal.

Proposals should include, at a minimum:

1. Intended high-level fund allocation of the endowment.
2. Initial and target size for the endowment fund, including the proportion of funds sourced from earned and unearned income.
3. How incoming revenues and income will be assigned to the fund.
4. Specific information on how the fund will be managed, and what steps will be taken to minimise custodial risk.
5. A fee schedule for the fund manager.
6. A detailed description of the reporting structures that will be put in place.

Priority will be given to proposals that:

• Minimise custodial risk by using onchain mechanisms that allow administration of the funds without the fund administrator having custody of the funds.
• Lay out a coherent strategy for how investment returns can be maintained in the short/medium/long term.
• Minimise capital risks relative to the expected returns.
• Define clear mechanisms for assessment and adjustment to changing external and internal conditions in order to continue to meet the endowment’s objectives.
• Offer a high rate of return proportional to risk.
• Define a clear reporting structure for frequent and comprehensive reporting of the fund’s status to the DAO.

Timeline

| Submission Period | September 12 - October 10 2022 |
| Approval Period | October 10 - November 7 2022 |

RFP Manager

The Meta-Governance WG stewards are the RFP managers for this RFP.

Proposals can be submitted via forum DM to the stewards. They will be held in confidence until the end of the submission period, at which point they will be posted publicly for feedback on the forum at the discretion of the proposal authors.

Budget

The endowment is expected to be self-funded, out of a combination of capital and performance fees as proposed by the fund manager.

Feedback appreciated on this draft of an endowment RFP.

The intention is to put this to a social vote (expressing the DAO’s desire to fund a fund manager to build an endowment). If passed, the Meta-Gov working group stewards (myself, @simona_pop and @Coltron.eth) will be entitled to take applications and approve a winning endowment manager.

Any future actions required to give the endowment manager the ability to invest the DAO’s funds will require a subsequent executable proposal to be passed.

Hey @nick.eth
Great starting post. I’d like to add some feedback for things we should consider when selecting, as well as giving some guidance to the overall intent and goals of the endaoment. I think you have laid out several of these at a high level, but it may be good to get some more concrete answers from the DAO itself before opening up the RFP so that potential managers can craft and articulate their responses.

Things we should absolutely include (or can be included in the proposal):

1. Investment Mandate:

• Fund Size: The ENS DAO will allocate [x] funds denominated in [a,b,c] cryptocurenncies to the Endaoment.
• Management: The funds should be managed in the acceptable management form (see below for style we should choose - my suggestion is the co-managed and not full custody).
• Investment Guardrails: The funds will be allocated with in an acceptable framework, defined by the Investment Mandate and the Risk Policy, and deployed in strategies with ENS DAO’s best interests above all others
• Base Currency: The fund itself will be risk neutral to [ETH] or [USDC], and all reporting will be done in this Base Currency.
• Reporting: The team will report on the fund on a weekly basis, presenting in a professional format the weekly / monthly / quarterly / annual -
  a. performance (pre and net of fees)
  b. fees
  c. assets balances
  d. cash flows
  e. investment transactions
  f. Crypto Exposures & Risk reporting (VaR & volatility & exposure analysis)
  g. Derivatives & hedges in place (as part of Risk management)
  h. Budget of endaoment
  i. Current Strategies Deployed & Overview of each

2. Mechanics of management
   There are two styles of management - either the endoament manager takes custody of funds and has discretion (within a given set of guidelines), or it is co-managed whereby the managers initiate transactions and the DAO selected representatives approve each transaction (so that funds still remain held by the DAO from a legal and custodial perspective). The advantages of custody are that it can be managed more actively without DAO delegate input, but comes with potential legal and fiduciary constraints. The (my preferred) co-managed fund has more DAO oversight and involvement, but can be sometimes cumbersome and less agile, however this can be mitigated.

3. Risk Policy
   The Risk Policy defines what level of risk the endaoment can undertake in its efforts to produce yield. As is typical, higher risk yields higher yield, but that is likely counter to the goals of the DAO. The Risk Policy therefore needs to address exposure risks (ie how much can the investments deviate from the Base Currency), smart contract risk, key-man risk, and other risks as it relates to ensuring the endoament is managed in a responsible way in line with the Investment Mandate and goals and requirements of the DAO.

I had envisaged that this would be part of a proposal; the funds required would depend on the risk profile and strategy selected by the applicant in order to meet the goals of $4M capital growth PA.

I think this is outlined in the proposal - ideally we want funds to be entirely non-custodial, with fund managers only able to approve an allowlisted set of operations, and there are (nascent) systems that can facilitate this.

I would view a “co-managed” approach as strictly inferior to this.

I assumed this would be a core component of any well-formed proposal. Is there a way you suggest I should clarify that?

Good point, I’ll clarify that.

Good idea.