In this challenging economic environment, losses continue to plague investors everywhere. The University of Toledo Foundation’s focus on long-term performance, however, indicates that broad diversification of assets ultimately remains the key to success.
Over the 12 months ending Dec. 31, the S&P 500 Index dropped 37 percent, according to Nick Conrad, Foundation Investment Committee Chair. “By contrast, the Barclays Capital Aggregate Bond Index advanced 5.2 percent for the year,” he said. “One could ask, if ongoing preservation is a goal, why would foundations invest in higher-risk equities rather than lower-risk fixed-income securities?”
The answer, according to Mr. Conrad, lies with the Foundation’s primary mission: the goal of “intergenerational equity.”
“Intergenerational equity is the ability to provide the same level of support, net of inflation and spending, in the future as is provided today,” said Mr. Conrad. “This goal drives our investment philosophy, and all investment decisions consider it.”
While lower risk investments seem “safe,” the yield is very low. Stocks, on the other hand, can be quite volatile.
A recent analysis of Foundation investments indicated that broad diversification—including stocks, hedge funds and bonds—is crucial, even considering the current bear market.
“Our analysis showed that having invested in all bonds or in all stocks would have resulted in less cash for the University’s needs and opportunities,” Mr. Conrad said. “A blend, heavily weighted in equities and alternative investments, has ultimately yielded the maximum cash generation over time for the institution.”
To achieve the primary return goal over the long-term, what’s needed is diversification, with a high degree of risk aversion through manager research and strategy, he said.
In addition, attempting to “time” the market through immediate and rash decisions is not an option for the organization’s long-term success.
“Incorrect market timing decisions can be catastrophic,” Mr. Conrad noted, “and cannot be practiced effectively for perpetual funds such as the Foundation’s portfolio.”
The UT Foundation Investment Committee remains committed to its investment philosophy, while continuing to review its strategies and managers. “We have, in conjunction with our investment advisor, a strong due diligence process to help screen out managers who lack either experience or proper controls to safeguard investor interests,” Mr. Conrad said.
“We take seriously our role as fiduciary stewards,” he added. “Even amidst these economic times, our mission will keep us on course to maintain and increase the value of our donors’ gifts.”
For more information about The University of Toledo Foundation’s investments, contact UT Foundation President Brenda Lee at brenda.lee@utoledo.edu or 419-530-7730.