Investment Strategy

Investment Objectives

The Foundation’s assets are assigned to one of four investment pools based on fund type and objective. Funds to be managed for perpetuity are invested in the Endowment pool. Donor Advised funds may be invested in the Long Term Pool, Socially Responsible Pool, Short Term Pool, or a custom blend of these three pools.

The Endowment Pool is designed for assets with the investment objective of maintaining value in perpetuity while serving the current needs of the community. The Foundation defines the investment strategy as an inflation-adjusted return consistent with a 5.00% distribution rate.

The Long Term Pool is designed for donors choosing to impact both the current needs of the community and those of future generations. The investment objective is to serve those needs, enable reasonable liquidity, and maintain value over an extended time frame. The Foundation defines the investment strategy as a diversified portfolio that provides an inflation-adjusted return consistent with a 5.00% distribution rate, and allows flexible donor grantmaking distributions.

The Socially Responsible Pool is designed for donors choosing to impact the current of the community and those of future generations. The investment objective is to serve those needs, provide a flexible amount of liquidity, and maintain value over an extended time frame. The Foundation defines the investment strategy as a balanced portfolio of securities from issuers screened for social responsibility in areas such as environment, workplace, product safety, human rights, and corporate governance.

The Short Term Pool is designed for donors choosing to impact both current and near-term needs of the community in which the investment objective is to maintain liquidity for grantmaking. The Foundation defines the investment strategy as a short duration portfolio whose targeted return matches or exceeds inflation. This pool is utilized for near-term grantmaking needs of all donor advised funds.

Investment Performance

The twelve months ending June 30, 2011 provided a second consecutive year of gains for the Foundation’s long-term portfolios.   To many, the market recovery has been surprising given the presence of major issues such as high rates of unemployment, anemic economic growth, large federal budget deficits and overly indebted nations in around the globe.   Nevertheless, markets are ultimately driven by the simplest of economic forces – supply and demand.  The balance that ultimately moves markets is both unstable and unpredictable as witnessed during the past few years and in the months following June 30 of this year.

For the 12 months ending June 30, 2011, the San Francisco Foundation’s Long Term Donor Advised portfolio rose 20.9% net of investment management fees versus a 21.9% advance for its customized benchmark. This result represents a top quartile outcome relative to the Russell/Mellon universe of endowments and foundations.

Of greater significance is the fact that the Long Term Donor Advised Pool has now risen 6.4% per year for the period June 30, 2008 to June 30, 2011.   This outcome is 2.1% per year ahead of the custom benchmark and 4.3% per year above the median return in the Russell/Mellon universe of endowments and foundations.

Performance during the past twelve months and through the tumultuous three years is the product of a straightforward philosophy that we believe will continue to serve the portfolio well during a persistently challenging market climate.   First, the Foundation’s Investment Committee elected to maintain a consistent strategy through the financial crisis under the theory that prices within capital markets had become attractive for a long term investor.   Specifically, this involved new allocations to distressed assets and a variety of attractively priced equity securities using exceptionally capable managers who had previously been closed to new investors or capital.   This willingness to maintain a long view was exceptionally important during the crisis and left the Foundation with a portfolio that was able to generate significant returns once markets stabilized.

In addition, the prevalence of short term thinking and panic created opportunities for many of the Foundation’s managers to add significant value by avoiding troubled areas while also buying assets that were priced with an irrational level of pessimism.  As a result, the portfolio was able to generate performance which exceeded market benchmarks by unusually large amounts.    Furthermore, this occurred across nearly all of the major asset segments that the Foundation utilizes.

In aggregate we are very pleased with the performance of the portfolio during the last year and over longer timeframes.  While market volatility is usually unpleasant and is not surprising given today’s complicated economic climate, it also provides a source of incremental return for the Foundation.   The concept of pooling the Community’s charitable resources never has greater significance as these periods demand access to the very best investors and this remains the ongoing objective of the Foundation’s Investment Committee.

For the latest investment performance updates, please log in to Donor Center or contact Philanthropic Services at 415.733.8500. 

Annualized Returns as of June 30, 2011

*Returns are net of investment manager, trading, and custody fees.

**These benchmarks are custom blends of several third-party indices and do not reflect the costs associated with purchasing, selling, or holding the securities included in the indices.

***The SRI benchmark is a custom blended benchmark (70% S&P500; 30% Lehman Agg) and does not reflect the costs associated with purchasing, selling, or holding the securities included in the indices.