The Foundation holds two types of capital funds: endowment funds where capital is held permanently and only income is available to be disbursed, and restricted funds where capital can be disbursed, depending on the agreement with the donor. Our investment objectives are long term, with the goal of achieving investment returns which allow for annual income payments to arts organizations together with preserving capital and maintaining the purchasing power of income over the rate of inflation. We strive to achieve at least a 5% real rate of return over a five year period. This allows the Foundation board to make sustained income payments each year in the range of 3 to 5 %.
Fiscal Year Ending March 31, 2014
At the end of March 31, 2014, Foundation assets under management were $67 million (subject to year-end audit review), up from $61.2 million in 2013. The asset growth is a combination of new contributions and matching funds received during the year of $850,000 and strong investment returns. This allowed us to make award and payouts and distribute just under $3 million in income to the 273 arts organizations across Ontario for whom we hold endowments for.
Over the years, the Foundation’s investment strategy has allowed for continued growth in income paid out year over year. This unrestricted income is an important resource for arts organizations in Ontario.
Strong Investment Returns
Investment returns for the year ending December 31, 2013 were very positive and the Foundation portfolio achieved 14.9% for one year. Five year returns were 10.2%,which supports our long term goal of achieving long term absolute capital appreciation, with a focus on capital preservation. Investments are made in high quality companies with trusted management teams who have a long term focus. To achieve our investment objectives, the Foundation believes it is prudent to have the assets managed by professional investment managers on a discretionary basis. Active management, where the portfolio managers make decisions regarding asset classes, industry sectors and individual security selection allows the Foundation to structure a risk managed portfolio that is expected to achieve long term positive returns.
In 2013, the Foundation employed three investment managers. During the first quarter, we consolidated investments allocated to the ‘alternatives’ sector from two managers to one, where performance results were stronger and aligned with our long term investment objectives.
What the Future May Hold
Despite considerable political uncertainty, and volatility in security markets worldwide, investments returns to March 31, 2014 continued to be positive. Investment performance for the quarter ending March 31, 2014 was 4.0%. Although it is difficult to predict, all signs are pointing to a market correction in 2014. Our focus will be strongly directed to managing the downside risk in the face of market instability and avoid losing capital over the longer term.