Return on Investments - 2018 a Challenging Year for Foundations
September 04, 2019
A recent report from the U.S. based Council on Foundations on investment returns for community and private foundations in 2018 is an interesting read. We monitor these reports as one way to confirm how the Foundation investment performance compares to similar size foundations.
Challenging Year
The report articulates how 2018 was a challenging year. On average private foundations earned a negative -3.5% for one year and community foundations a negative -5.3%. The OAF achieved a better, but still negative one-year return of -1.9%. All of these results are reported net of all investment management costs.
One would caution that December 2018 was a particularly challenging year end, and markets recovered strongly in the first quarter of 2019. (The Foundation earned 8.1% for the year ending March, 2019.)
Endowment spending and annual disbursements averaged 4.6% for community foundations. Spending rates declined slightly across the sector in light of the lower returns.
Most organizations’ long-term reporting (10-year performance) no longer includes the 2008 market downturn. When looking at 10-year returns, community foundations with assets below $100 million generated annual returns of approx. 8%. The OAF 10-year return is similar at 8.2%.
Asset Allocation
One of the factors we monitor is the asset allocation strategy of comparable size foundations. During 2018, changes in asset mix were minimal for both private and community foundations. The most significant difference between the OAF and private and community foundations is the larger allocation to alternative strategies and a lower allocation to fixed income by the OAF.
The Foundation board has been lowering direct fixed income as a part of asset mix, as we feel that higher returns are available from equities on a long-term basis.
Conclusion
It is not our intention to follow the strategies of other foundations. The OAF charts its own strategy which focuses on the long-term and protects capital, ensuring annual returns that allow for disbursements to support the arts.
Nonetheless, it is helpful to monitor what is happening in the charitable sector as a “reality check” and assurance that our strategies are doing well.
Putting Wealth to Work - A good read
February 22, 2019
Putting Wealth to Work: Philanthropy for Today or Investing for Tomorrow?
by Joel L. Fleischman. PublicAffairs. New York, New York, 2017
ISBN: 9781610395335
The Philanthropist, a good Canadian journal on philanthropy, recently issued a book review on a book that is worth reading – Putting Wealth to Work: Philanthropy for Today or Investing for Tomorrow? by Joel Fleischmann.
The book provides a good perspective on the merits (and weaknesses) of perpetual endowment foundations and short term or ‘time limited / spend down’ foundations. It shares a balanced perspective on both approaches.
Perpetual Foundations
The author suggests that a benefit of perpetual foundations is that very large social issues and challenges cannot be effectively addressed within a single lifetime. Learning and applying philanthropy can grow and improve over generations.
Giving While Living
The contrast is with a younger generation perspective of ‘giving while living’ – seeking to accomplish goals within a short time frame. This is in part reflects significant growth of personal wealth and change in profile to ‘younger’ philanthropists, often emerging from the technology sector.
The book covers effectively key trends in philanthropy – from a US perspective, but the themes are applicable to Canada. It includes an interesting discussion on the role of foundations in taking positions and seeking to influence public policy decisions, something we are seeing here in Canada. Mr. Fleischmann describes well the desires and considerations of donors who wish to ‘give while living’ – foundations having a fixed life, along with the importance over time of longer perspective.
Ontario Arts Foundation The Ontario Arts Foundation falls into the latter category, we aim to grow endowment assets to provide a long term, stable and increasing source of income for arts organizations. Over time, we continue to learn about endowment and the drivers/motivations of donors.
We recommend both the publication The Philanthropist and the book.
Planning for Economic Uncertainty
December 07, 2018
Much of what we read in the financial press these past few weeks and months speaks of increasing economic volatility and political and market uncertainty. Talk is less about will there be an economic recession, but when will we see the next downturn.
Long-term Perspective At the Ontario Arts Foundation, we continue to hold a long-term perspective and our choice of investment managers and strategies is focused on a portfolio of assets well positioned to grow their businesses over time, are financially strong and able to weather the vagaries of the economy and political climate. That doesn’t mean, we won’t be subject to short term ‘swings’ in value, but a focus on capital preservation and growing it responsibly can mitigate the day to day and month to month market volatility. Most importantly, for our donors and arts organizations, our investment strategy is structured to continue to deliver a stable source of annual income, revenue arts organizations can count on for the long term.
But what should you do as an arts organization in this environment? This recent blog post Barry’s blog – “What Do You Do if the Economy Goes South”offers suggestions, that make good sense for positioning themselves for financial stability. Arts and culture organizations are often under-capitalized and may not have deep operating reserves, and earned income is often not sufficient to offset changes in other revenue sources such as government grants, performance/exhibition revenue or donor gifts. The suggestions the article offers are simple and this is a good time for arts managers and their Boards to review their financial strategies.
