Investment Performance
Q2 2023 Report
Thank you for choosing Seattle Foundation as your partner in philanthropy. We know that you share our commitment to creating a region of shared prosperity, belonging, and justice. We appreciate your confidence in us to manage your assets in service of a greater goal: fostering a community where everyone can thrive. We are pleased to share these results from Q2 and we welcome any questions or feedback.
Market Conditions
Global markets continued to rally in the second quarter, again providing evidence of the random nature of short-term market fluctuations. Recent price gains continue to be concentrated in a few of the largest index positions and have pushed indices such as the S&P 500 into unusually high levels of concentration across their top five names. This is of concern as concentration and risk go hand and hand.
The willingness of investors to provide capital is at the heart of our economy. Bad businesses can survive far longer than one might expect when capital is plentiful, whereas good businesses may fail when it is scarce. Our worry is that most investors have built portfolios that are highly dependent on the free money climate of 2008 to 2021. This is of grave concern as the probability of a very different climate seems increasingly likely.
As a result, whether one is looking at real estate, private debt, public equities, etc., it is essential to consider the implications of an extended period of capital scarcity. Unfortunately, this will require some creativity, pessimistic underwriting, and realization that the track records produced during a time of plentiful capital are basically without meaning.
A quarter ago, we advised a focus on meaningful diversification, resilience, and investment processes that fully account for the risks of a more complex economic climate. The conundrum today is that the surge of investor capital into the S&P 500’s largest names is sensible given the amount of cash these businesses generate. At the same time, it does not account for the dangers of crowds and the broader opportunity set that is plain to see. Nevertheless, we must not forget that randomness rules the day and the most successful among us respect its power while also capitalizing on its tendency toward excess.
The Foundation’s investment pools were designed to thrive in the type of investment climate we are currently experiencing, as complexity provides an advantage to patient, disciplined investors with in-depth knowledge of the fortunes of individual companies. This, plus the Foundation’s diversified strategy, will likely be key contributors to overcoming what might at times be fierce headwinds from markets and the world at large.
Portfolios
The Balanced Pool is the Seattle Foundation’s primary investment pool and is actively managed to deliver returns at 5% plus CPI over a long-term horizon. It maintains a diversified portfolio that includes exposure to global equity markets, alternative investments, and more conservative asset classes such as U.S. Fixed Income. Over the last 10 years, the Balanced Pool has gained 6.9% per annum. The Pool gained 4.2% in the second quarter and registered an 11.3% gain in the last 12 months. The portfolio has rebounded as investors have become more accustomed to the complexity of the current climate.
In addition to our Balanced Pool, we offer other investment options to meet our fundholders’ needs. Our Socially Responsible Pool, designed to meet ESG (Environmental, Social, and Governance) requirements while also providing competitive economic returns, gained 4.3% for the quarter. Our Intermediate-Term Pool, designed to meet the expectations of donors with a grantmaking horizon in the 2-7-year range, gained 1.2%. The Foundation also manages a Short-Term Pool for donors with very short grantmaking horizons. This pool is intended to preserve capital as best as possible and gained 1.0% for the quarter. Lastly, the Foundation offers an Index Pool, which is all passive, and a Growth Pool. These pools gained 4.0% and 3.4% in the quarter, respectively.
We are thankful for the opportunity to support you in creating powerful, rewarding philanthropy to make King County a stronger, more vibrant community for all. We welcome your questions and comments about Seattle Foundation.
Sincerely,
Joseph Boateng
Chair of Investment Committee