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As stewards of charitable capital, the community foundation is faced with the challenge of how to best react to one of the most perilous times to ever be investing and what may also be extraordinary investment opportunities by historical standards.

Investing in the Common Good - 2008

We are pleased to report that our investment portfolios have benefited from a prudent asset allocation strategy that balances the need for long-term growth with the need to provide short-term liquidity for grantmaking through investments in liquid assets and absolute return strategies.

Unlike some endowments and foundations that heavily emphasized illiquid assets, the community foundation’s long-term portfolios remain focused on liquid securities combined with allocations to alternative investments that also provide solid access to the community foundation’s assets as needed.

Despite the bleak economic outlook and staggering declines in portfolio values experienced by most investors during the past 18 months, investment returns of the community foundation’s long-term portfolios are beating their benchmarks by a healthy margin. Returns for our Endowment and Long-Term Growth portfolios outperformed their benchmarks by 2.6% and 5.1%, respectively, for the year ended February 2009¹.

Our managers have avoided any meaningful exposure to "toxic" mortgaged backed securities or permanent losses from the growing list of troubled companies filing bankruptcy or seeking federal assistance. We credit this fortunate outcome to the rigorous initial and ongoing due diligence performed by the community foundation’s investment committee, consultant and staff.

Despite the apparent risks happening today, our fundamental view of how best to invest charitable capital has not changed.

While it may seem safe or prudent to move to a more defensive posture until conditions improve, this is likely to do more harm than good. We believe that during difficult periods it is critical to remain focused on a coherent philosophy geared to achieving investment goals.

The community foundation’s investment philosophy can best be described as follows. Please note that this approach is applied to each investment portfolio with differences in strategy dependent on the portfolio’s time horizon:

• Establish a strategic asset allocation which is expected to achieve the portfolio’s return objective, thereby maximizing return given a prudent level of risk
• Avoid the temptation to market time or change strategy based on short-term market behavior or near term outlook
• Diversify the portfolio by asset class and strategy as this increases the likelihood of achieving return objectives under different economic and market conditions
• Conduct rigorous initial and ongoing due diligence of investment managers

Our consistent strategy and careful stewardship is working well and has been noticed by others. Increasingly, individuals, corporations and trustees of nonprofits, private foundations and charitable remainder trusts are choosing the community foundation to invest and administer their charitable assets on their behalf. We are pleased to support the philanthropy of so many in this way.

In hindsight, the timing of the merger in 2007 by our parent entities was fortuitous. The combined size of the community foundation is stronger, better diversified and much better positioned to weather these uncertain times as a result.

Thank you for your partnership and for continuing to support making a lasting difference in our region. If you have questions or would like more information about our investment strategy, please contact Bert Feuss, vice president, investments, at bwfeuss@siliconvalleycf.org or 650.450.5459.

¹ The one year return for the Long-Term Growth pool through February 2009 was -28.8% compared to -33.9% for its benchmark of 75% S&P 500 Stock Index and 25% Barclays Capital U.S. Aggregate Index. The Endowment pool returned -32.7% compared to -35.3% for its policy benchmark for the same time period.