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.
Strategic Investing in the Arts
October 07, 2013
I recently read a comprehensive outline for a strategic framework for investing in the arts. Based in California, the paper by the William and Flora Hewlett Foundation is a superb description of the role of a foundation as funder, a descriptor of why we should invest in the arts, and an outline of what is offered/expected of the relationship between arts organization and funder. The foundation offers a compelling reason for investing in the arts.
“The performing arts offer a unique human experience that bridges cultural and generational lines. Philanthropy plays an important role in supporting the performing arts….and its approach to providing multi-year operating support”
At a time when many arts organizations invest considerable time in researching and completing funding applications, trying to make their mission ‘conform’ with a granters program for funding, it is refreshing to see a foundation that provides multi-year funding in a way that allows the organization the freedom to determine where best to apply the funds received. "The Foundation has persisted in providing a significant portion of its support in unrestricted form, while other funders have increasingly favored project support."
This is similar to how endowment income is made available by the Ontario Arts Foundation. It frees the organization to invest more of their time with programs, supporters and the community.
The paper is not long and really well written. I encourage you to take a look.
Community, Arts and Engagement
September 16, 2013
Looking at the mission statements of arts organizations, you see references to community engagement. The term can have many different interpretations across organizations and disciplines. I found a helpful definition in a recent (September 13, 2013) blog post by ArtsBlog. It referred to definitions that I found simple and clear:
Community : refers to individuals and organizations who are related through arts education delivered in a local community
Engagement : describes an active, two way process where the arts organization motivates others to become involved/take part in arts activity. Through the activity, both parties experience change.
Mutual activity and involvement is a key determinant to successful community engagement. Arts organizations who are involved with their local community embody these terms in several ways;
Reaching out to the local community to identify arts needs its education programs can meet/fulfill. This differs from developing an idea and then offering it to the community
Introducing young people to art forms through education programs, both within the organization (invite participants in) or taking a program out to the community - a school, community centre or public event
Responding to an increasing desire for continuous learning by older audiences – through exhibitions, lectures, education series, take a performance to the audience
Attracting visitors – who are drawn to the arts program as part of their visit ( it may become a reason why they visit )
Employing local artists to deliver arts education programs
Successful programs begin with a dialogue with the community to identify a need / opportunity, and an initiative or program follows. This is described as being more successful than the arts organization developing a program they wish to ‘introduce’ to the community. Mutual ownership of the idea and then program are suggested to be more successful in sustained impact over time. I’ve observed that when financial circumstances are challenging, external arts education or outreach programs may be reduced or cut back. If engagement is part of the arts organization’s mission, this may be short sighted. A successful organization focuses on taking programs out to the community as well as drawing participants to the organization and its arts goals.
Arts education is a means to engage at all ages.