Foundation Investment Strategy
September 30, 2008
Dear Friends of the Foundation,
We are writing to you to address current conditions which have an impact on your fund with the Sacramento Region Community Foundation.
Over the past year we have seen deterioration in nearly all market segments, both domestic and abroad. In recent months we have seen these issues exacerbated with concerns surrounding some of the largest financial institutions in the U.S.
As stewards of charitable capital, we are faced with the challenge of how best to react to the turmoil which has emerged. While it may seem “safe” to move to a more defensive posture until conditions improve, this is likely to do more harm than good for it is during difficult periods that we must remain focused on a coherent philosophy geared to achieving investment goals.
We want to emphasize that our investment philosophy is not built on blind faith that time will cure all. Instead, we know that the bulk of the rewards accrue to those who act wisely and in that regard, we have and will continue to diligently monitor the Foundation’s portfolio. This process is driven by our need to gain both a full appreciation for the risks being assumed along with the decisions that are being made during this unusual and tumultuous period.
Further, remember that the Foundation initiated a new investment strategy for endowed assets in April of 2007 and we should recognize this period as one of the portfolio’s first tests – a test to prove or disprove that diversification can truly benefit a portfolio. One of the primary purposes of diversification is to protect assets in difficult markets. Although all markets are generally down right now, we hope the portfolio’s relative resilience provides some comfort. Over the past year (ending August 31, 2008), the S&P500 index is down -10.5% while the MSCI EAFE index (which measures International equity) is down -14.4%. Meanwhile, the Foundation’s endowment portfolio is down -4.9%, net of all investment manager fees. While negative performance is not something we appreciate seeing, the diversification benefits embedded in our portfolio have proven to protect assets far more than what the market is providing. In addition, it is important to note that several strategies within the endowment have actually produced positive results on a 1-year basis, in equities, fixed income and alternative investments.
From an activity standpoint, we have recently taken advantage of opportunities in the market by looking into depressed areas and placing investment. Meanwhile, many of our investment managers have pushed portions of their portfolio into cash. Their intention is to mitigate risk but also look for buying opportunities as they come available.
We hope this letter provides some comfort as we face these very difficult times and we want to reiterate the fact that the Foundation’s Investment Committee, staff and investment consultant are continuously evaluating our portfolio’s risks, exposures and opportunities. As always, we greatly appreciate your generosity and concern for your community.
Should you have additional questions, please feel free to contact us.
Sincerely,
Ruth Blank James B. McCallum, CPA
Chief Executive Officer Chief Financial Officer