The Harrison County Community Foundation (HCCF) manages more than $200 million in assets, with the majority of these assets being held in 260 different designated endowment and unrestricted-use funds. These funds are what allow HCCF and its donors to support local nonprofit agencies and projects to improve the community.
The funds are protected by legal agreements and spending policies. The HCCF Finance Committee is tasked with investing these resources in a manner that will grow the funds while safeguarding against inflation and spending.
Whereas inflation has fluctuated over time, HCCF has kept a steady spending policy, which is a percentage that dictates how much money can be used out of a fund. Currently, all HCCF endowed and unrestricted funds use a 5 percent (of the fund’s total balance) spending rate, with the exception of scholarship funds, which are held at 4 percent.
Agencies that benefit from and donors contributing to HCCF funds frequently want to discuss the relationship between investment return and spending. Higher investment return naturally increases the size of the funds and therefore increases the amount available for spending.
These discussions on investment return tend to leave out one equally important component. Much like the phrase “There are two sides to every coin,” there are two sides to overall investment performance: investment return and investment risk.
Understanding the tradeoff between investment return and investment risk is important. Lower-risk investments typically generate lower return while higher-risk investments typically generate higher return. As stewards for a large investment portfolio benefiting Harrison County, the HCCF Finance Committee’s investment strategy must manage this tradeoff while meeting the needs of the community.
At a bare minimum, the investment strategy must balance investment return and risk in order to cover the spending rate, inflation, and any administrative fees to preserve the purchasing power of the funds. Currently, HCCF does not charge administrative fees on funds benefiting Harrison County. By not charging administrative fees, HCCF is able to provide a higher spending rate for its funds than some other community foundations.
The Finance Committee’s current investment strategy is expected to generate an average of 7 percent return annually. The difference between the expected investment return at 7 percent and the spending rate for most endowed funds at 5 percent leaves a remaining 2 percent to cover annual inflation, and therefore preserve the purchasing power of the funds.
This expectation does not mean actual investment return must hit 7 percent each year. Because there will be up years and down years, investment return is monitored on longer five- and 10-year time horizons.
HCCF has used SEI Investments Company as the foundation’s contracted investment manager since 2012. SEI selects the best investment managers for each investment type within the portfolio, which aligns experts with their respective areas of expertise. SEI manages and maintains a diverse investment portfolio, in order to obtain the optimal balance between investment return and risk.
HCCF’s investment portfolio may never perform at the top, but the strategy is designed for the portfolio to never be at the bottom. In many surveys, HCCF’s investment portfolio ranks ahead of peers in categories regarding investment return and risk. The investment strategy is less focused on hitting numbers, and more focused on ensuring HCCF funds can support local nonprofit agencies and projects now and in the future.