The Foundation’s investment portfolio had appreciated to approximately $560 million at the end of 2014. Spending for grants, administrative expenses, and taxes totaled $24 million. Total return on the investments, income plus realized and unrealized capital gains, was about 6 percent. Audited financial statements were not completed in time for this printing, but will be available on the Foundation’s website.
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 consistent growth of its assets at a level greater than the rate of inflation. We are pleased that the Foundation was able to preserve and enhance the real value of its endowment over the past 27 years; the portfolio delivered a 9.0 percent return per annum, while spending over $810 million in today’s dollars for grants and expenses during this period of time.
During 2014, there was a wide dispersion in returns across capital markets. It was another strong year for U.S. equities, with the S&P 500 advancing 13.7 percent, which marked its sixth consecutive year of gains. However, international stocks did not fare as well as their U.S. counterparts; emerging markets’ equity rose slightly for the year, but developed markets’ equities retreated. Credit markets delivered mixed results during the year; the broad U.S. bond market returned 6.0 percent, high-yield bonds gained 2.5 percent, while the local emerging market debt declined 5.7 percent. Hedge funds as a group, represented by HFRI Weighted Composite index, had a modest return of 3 percent.
As a result, the diversified portfolio’s 2014 performance, while continuing to benefit from the solid performance of U.S. equities, private equity, and real estate holdings, only slightly outpaced the inflation plus spending rate in 2014.
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 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 investment opportunities as well as to better weather market turbulence in the future.
At year-end 2014, the liquid portion of the portfolio was in close alignment with the long-term target allocation, whereas illiquid funds will take longer to achieve their targets due to the timing and pace of new commitments and distributions. Over the course of 2014, the portfolio had been rebalanced to reflect its revised strategic allocation targets in light of reduction in the target level of private equity from 14 to 10 percent. At the end of the year, the Foundation’s asset mix was 40 percent long-only equities, 13 percent fixed-income, 3 percent cash, 18 percent hedge funds, 8 percent tactical tilts and a total of 18 percent in private equity and real estate funds, compared with 40 percent public equities, 12 percent fixed-income, 4 percent cash, 16 percent in hedge funds, 8 percent tactical tilts, and 20 percent in non-marketable alternatives as of the end of 2013.
The Finance Committee and the Board of Trustees meet regularly with Goldman Sachs to review asset allocation, investment strategy, and the performance of the underlying investments. 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.