Achieving Steady (And Growing) Investment Returns
November 04, 2013
A recent article in a US philanthropy publication reported that endowment funds held by charities and foundations were reporting average 5% returns (2011) and that investment performance has still not fully recovered from the steep market declines in 2007-2008. The article indicated, in this environment of low returns, some organizations were moving to ‘protect’ the endowment value by lowering endowment payouts, appealing to donors to contribute, or seeking higher returns by investing in alternative asset classes.
OAF Investment Policy
The Investment Policy of the Ontario Arts Foundation states that the principal objective is to secure steady, positive long terms returns that help ensure consistent income payouts to arts organizations. An equally important objective is to grow the value of the endowment portfolio so that the income it generates can keep pace with or be greater than the rate of inflation.
Each year, the board of the Foundation reviews investment performance and determines how much can be paid out from the endowments we administer. This helps arts organizations to plan how they will use this important source of ‘unrestricted income’. This annual review takes a balanced approach:
- pay out income such that organizations receive steady, and increasing income; and
- retain and reinvest part of the returns for future years.
Retaining some of the investment return is a safe guard to ensure that in a year where investment markets may experience a downturn, we are holding sufficient funds that enable the foundation to pay a similar level of income even if markets underperform.
Strong Investment Returns
We are pleased to report that changes the Board made in our asset mix and investment strategy in 2012 are resulting in positive investment results which exceed the levels reported in the US. To the end of September 2013, the Foundation portfolio achieved a positive 9.1% year to date return, and for the one year period, performance was a strong 12%.
2012 Investment Strategy
In 2012, we made changes in our investment managers, which included allocating part of the portfolio to alternative investments. Without materially increasing the level of ‘risk’ in the portfolio, the more active investment strategies of the managers are adding value to positive results from more traditional asset classes of equities/fixed income. Earlier this year, the Board also felt that investment returns from fixed income/bonds are lower than the risks associated with fixed income ( we continue to be in a period of low interest rates ) and fixed income weights were reduced, reinvesting into equities.
The Board of the Foundation meets regularly with our investment managers to receive information about their view of global investment markets, current strategy and performance. We are pleased with these results, which will support our ability for continued stable distributions of income.
As the income we pay out is ‘unrestricted’, arts organizations can allocate the income where they feel it is most needed within their organization. It is recurring income and not subject to lengthy, sometimes complex granting program requirements.