Performance as of December 31, 2012
2012 proved to be a very positive year for The Seattle Foundation’s investment portfolio. Strong returns helped fuel the ever-growing generosity of our fundholders, who distributed a record amount of grants to a wide array of causes. It was definitely a year in which “doing well” and “doing good” went hand-in-hand as evidenced through the powerful partnership between the Foundation, our fundholders, and the communities we serve.
The investment portfolio benefitted from the rally in the equity markets, as well as Federal Reserve and European Central Bank actions throughout the year that resulted in greater market confidence. We also saw improving fundamentals on the economic front as consumers and businesses continued to spend, housing began to rebound and unemployment slowly trended down. As a result, all equity markets gained in 2012 and the fixed-income markets also provided investors with reasonable, albeit lower, returns.
The Seattle Foundation’s portfolios generally kept pace with equity markets, tempered by a diversified portfolio with exposures to fixed income. For the year 2012 the Balanced Pool, our most popular investment alternative, gained 13.0% (net of all investment fees), which compares favorably to our benchmark (60% MSCI World/40% Barclays Aggregate), which gained 11.5%. For the fourth quarter, the portfolio realized 2.0% against a benchmark of 1.8%, finishing a strong year of performance.
Fees charged by managers of traditional bonds and equities are generally a stated percentage of the assets that they manage. The Foundation is afforded "institutional rates" from these managers. Accordingly, the fees paid compare favorably to those paid by other investors.
Fees charged by managers of alternative assets classes (e.g., hedge funds, private equity funds and private real estate) typically consist of two elements. First, they charge a percentage fee against the assets invested in their funds. Second, they are entitled to an incentive fee (a "carried interest") that is earned based on performance of the investments. These fees are generally higher than those charged on traditional investments and increase (as a percentage of investments) when the manager performs well. The fees paid by the Foundation are comparable to those paid by other investors in these types of investments. The Foundation also incurs fees for the independent consultant and for securities custody services.
Overall, the total fees relating to the investment portfolio range from an effective rate of 80 to 90 basis points (i.e. 0.8% to 0.9%).