The OAF Blog

What Drives a Payout Decision?

March 07, 2016

At the beginning of each year, the Foundation Board meets to review investment performance and decide on the payout percentage.  This determines the actual income arts organizations holding endowments with the OAF will receive. What does the Board consider in making this decision?

Market Growth
The majority of endowments we administer are permanent.  The original capital can never be paid out and income is based on returns (cash income and market appreciation).  So rule # 1 is to invest the portfolio so that annual returns increase each fund’s value, which creates income available to pay out. Our investment objectives are to earn consistent returns that support annual distributions, to preserve the capital in real dollar terms (protect against inflation) and cover investment management and our administration expenses. We invest for the long term, and aim to be able to pay out 3 to 5% returns consistently.  We seek returns that exceed 5% over a 5 year period.

The Board looks at investment returns for the past year ( 2015, 7.2% ) and returns for 5 years ( 9.0% ) and 10 years ( 6.7%).  This confirms that market growth is well in excess of our policy objective and that the difference between the original endowed value and current market is growing. We want that difference to be going up each year. As that happens, the board can with confidence strike a payout percentage that is stable and consistent.  

A consistent income year over year is helpful for arts organizations in setting their operating and program budgets. We believe that consistency is more important than maximizing a payout in a given year then having to lower it in a future year.  We recognize that arts organizations need the income from their endowments, and we try to pay as much as we can while being mindful of the long term.

Another way we look for stability is to base the distribution rate on the average market value of the funds over the previous three years.  This is helpful both as markets grow year over year or experience a decline.

Investment Strategy
The Board is mindful of future return expectations, which is reflected in the asset mix strategy and decisions on investment managers.   As a long term investor, our investment strategy has a bias towards equities, and we choose managers having a long term investment focus. That focus examines economic themes emerging across the world, and identifies businesses that will benefit from these themes and are well managed to excel in their particular business and marketplace. These strategies mitigate short term volatility and position the Foundation for sustained long term growth. We believe we are achieving success in this regard.  The OAF investment portfolio has achieved higher long term returns with lower volatility than most managers following a similar strategy.  The OAF annualized 5 year returns are approximately 10% vs a 7.6% from a universe of comparable balanced portfolio managers.

Lastly, we seek returns that are decent versus excessive as we strive for that long term continuity, and avoid significant year over year variations in returns.


The debate at the Board is always lively, as it seeks to balance a sustained, increased amount each year, while also marshaling resources for the long term  in order to deliver stability.  For 2016, all factors resulted in a decision to maintain a 4.5% payout.  Ontario arts organizations will receive just over $3.0 million in endowment income this year.



Common Issues Facing the Arts in Canada and the U.S.

December 16, 2015

Canada does not have an annual gathering of arts funders that embraces private, government and public funders similar to Grantmakers in the Arts in the U.S.  Therefore, it is always interesting to monitor the dialogue coming out of the organization’s annual fall conference. At the 2015 meeting, a couple of key themes were tabled that we feel are equally relevant to the Canadian arts sector.

  1. Sustainability
    The discussion revolved around actions funders can consider to help arts organizations achieve long-term sustainability, and access capital resources to help weather economic fluctuations in the hopes of achieving stable operating revenue that is close to meeting operating expenses year over year. Many organizations are simply unable to move beyond the annual scramble to fundraise and/or meet earned revenue targets for the arts programs they deliver.

    Building sufficient capital reserves is a strategy that is desirable, but seems today to lack the ‘sizzle’ of current themes of funding social enterprise/social impact investing. Practically, raising funds to meet current operations is critical to the delivery today’s arts programming (as well as the employment of artists, delivery of arts education etc.). The allocation of scarce resources is a common challenge. The attention paid by some funders to social impact/ social enterprise initiatives (totally laudable) inevitably means funding for operations gets squeezed.

  2. Equity
    Allocating funding between established arts organizations and new and emerging organizations is also a common refrain. Where to place funds so that they do the most ‘good’ is a challenge, particularly at the government funding level where demand increases and funding dollars are flat or declining.

    The dialogue we fund the established, well know organizations at the expense of investing in new, often culturally diverse arts organizations, or the reverse – insist on greater financial independence from the larger organizations and help support the next generation of artists and arts organizations? There is no common answer to the issue.  Finding a balance between established and emerging is a continuing dialogue.  Funding that reflects the cultural evolution and diversity in our communities does seem a reasonable approach.

  3. Other topics raised at the U.S. conference included:
    1. Tenure – how long should a funder support an organization?  Should there be an expectation of achieving financial independence and allow funding to move to a new organization?

    2. Reporting – understanding the effectiveness and impact of grants made to arts organizations. Has the investment generated positive results (a subtext is over what time should that be assessed).

    3. Capitalization – helping organizations establish financial reserves to weather changing times and economic cycles. This is where the topic of endowment plays a role.

    4. Where should the strategic emphasis be?  Capacity, sustainability and engagement – what is a reasonable time frame for each?

The GIA website does not have open access to all conference presentations, but there are excellent blog summaries by Barry Hennius and Lara Davis on the conference proceedings.  Always worth a read.



Ontario's Culture Strategy

November 25, 2015

The Ontario Arts Foundation is committed to the contributing to the success and financial stability of the arts in Ontario. We do this by connecting private donors and the arts through endowments largely established in response to government matching programs. The OAF has invested significant time in the past year to raising the profile of matching programs at the provincial and federal level. We have met with Artistic Directors and Arts Managers to provide information about long term funds and discuss whether the timing is right for their arts organization to raise endowment capital and apply for matching grants.

At the moment, the only active matching program is federally throught the Department of Canadian Heritage, Canada Cultural Investment Fund, Endowment Incentives Matching Program. We are in regular contact with senior staff at Ontario’s Ministry of Tourism, Culture and Sport to reminding government of the benefits of matching, the value over time of the provincial Arts Endowment Fund program (1998-2008) and encourage a new investment.


Ontario's Culture Strategy
It is an opportune time to elevate the profile of endowment and matching with the Province of Ontario's Culture Strategy currently underway.

We met in September with Deputy Minister Drew Fagan and Assistant Deputy Minister Kevin Finnerty to share information about the compelling economic results of the Arts Endowment Fund program and to encourage the Ministry to invest in renewing the AEF program as an outcome of the Culture Strategy. 

In October, we met Canadian Heritage Deputy Minister Graham Flack to express appreciation for the Federal government’s continued investment in endowment matching. Now that the election is over, we asked the Ministry to consider alternate ways to support arts organizations, specifically art galleries and museums currently ineligible for the Endowment Incentives program. We look forward to meeting Canadian Heritage Minister Joly and to learning more about the new government’s priorities as part of the 2016 Federal Budget.


Ontario Arts Foundation's Submission
We are participating in the town hall Culture Talks sessions this November and December hosted by the Ministry of Tourism, Culture and Sport. We encourage all arts organizations, their leaders and board members to attend one of the remaining sessions if you haven't already, and to share your vision for arts and culture in Ontario. If your organization holds an endowment under the Arts Endowment Fund program, it is an opportunity to express in your own words, the stream of secure income you receive.

Here is the submission made by the Ontario Arts Foundation to Ontario's Culture Strategy.



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