The Foundation’s investment portfolio had appreciated to approximately $514 million at the end of 2012, from $478 million at year-end 2011. Spending for grants, administrative expenses, and taxes totaled $23 million. Total return on the investments, income plus realized and unrealized capital gains, was about 12.7 percent. Audited financial statements were not completed in time for this printing, but will be available on the Foundation’s Web site.
The Foundation’s investment objective continues to be securing maximum long-term total return on its investment portfolio in order to maintain a strong grants program, while assuring continued growth of its assets at a level greater than the rate of inflation.
Despite a challenging macro environment and lackluster economic growth, global equity markets posted double-digit returns in 2012, with the MSCI ACWI index rising 16.1 percent. Credit markets also recorded strong gains during the year; treasuries produced a modest gain of 2.0 percent, investment-grade bonds advanced 9.8 percent, and high yield bonds climbed 15.8 percent. As a result, the Foundation’s portfolio had benefited from the strong performance in the financial markets during the year, continuing to recover from the financial crisis 2008-09.
In order to best meet its fiduciary obligation, the Foundation has outsourced its investment management function since the beginning of 2009. Goldman Sachs, the Foundation’s current investment advisor, has collaborated closely with the Foundation to redesign its asset allocation guidelines and implement significant portfolio changes by employing both passive and active strategies, since August 2012. The current portfolio remains liquid and well-diversified, providing it with the ability to capitalize on future investment opportunities as well as to better withstand dramatic swings in the financial markets. With respect to the portfolio’s long-term asset allocation, the volatility target has been increased with the goal of meeting investment objectives.
To that end, the Foundation had reduced its allocation in cash and hedge funds, while adding traditional fixed-income investments and increasing exposure to long-only equities. At the end of the year, the Foundation’s asset mix was 29 percent long-only equities, 7 percent traditional fixed-income, 4 percent cash, 20 percent hedge funds, 5 percent tactical tilts and a total of 35 percent in private equity and real estate funds, compared with 21 percent public equities, 11 percent cash, 28 percent in hedge funds, and 40 percent in non-marketable alternatives as of the end of 2011.
As of December 31, 2012, the Foundation’s long-only equity investments are diversified across separate accounts managed by Lateef Investment Management, Eagle Asset Management, Gannett Welsh & Kotler, The London Company and Invesco, two comingled funds (Non-US Equity Managers: Portfolio 4 and Artisan Dynamic Equity), as well as passive strategies (Vanguard S&P 500 ETF, iShare Russell 2000 Index ETF and Vanguard FTSE Emerging Markets ETF). The fixed-income program has been implemented through investments in Vanguard Total Bond Market ETF, and mutual funds managed by Eaton Vance Investment Managers, T. Rowe Price Associates, Stone Harbor Investment Partners, and Hartford Funds Management Company. The hedge fund portfolio is comprised of Convexity Capital Offshore LP, Japan Macro Opportunities Offshore Partners, Pennant Windward Fund, York Credit Opportunities Unit Trust, Caxton Global Investments, Brevan Howard Multi-Strategy Fund, Egerton European Dollar Fund, Tudor Discretionary Macro Fund, Turiya Fund, Claren Road Credit Fund, Koppenberg Macro Commodity Fund and BlueTrend Fund. In addition, private equity partnerships are actively managed by GCP Capital Partners, Angelo, Gordon & Co. and Brentwood Associates. Real estate investments consist of funds managed by TA Associates Realty and Angelo, Gordon & Co.
The Finance Committee and the Board of Trustees meet regularly with Goldman Sachs to review asset allocation, investment strategy, and the performance of the individual investment advisors and funds. Northern Trust Corporation is the custodian for all the Foundation’s securities. A complete listing of investments is available for review at the Foundation offices.