Investment Report

Q4 2018 Investment Report

As of December 31, 2018

Kirstin-Sandaas 250 Kirstin Sandaas, Chief Financial and Operating Officer

Seattle Foundation saw record growth in 2018. We invested an unprecedented $123.8 million in grants in the community and received a high of $128.6 million in gifts for future investment. We achieved these results to advance our mission against the backdrop of a challenging year in the financial markets.

Markets closed out the year in a volatile state as prices fell, with significant declines that failed to spare even companies with strong operating results. For the quarter, the Standard & Poors 500 Index lost -13.5%, while smaller U.S. stocks in the Russell 2000 dropped -20.2%. Non-U.S. developed equities (MSCI EAFE) fell -12.5% while emerging market equities (MSCI EM) lost -7.5%. Because of this difficult quarter, all major equity indices ended the year negative: S&P 500 (-4.4%), Russell 2000 (-11.0%), MSCI EAFE (-13.8%) and MSCI EM (-14.6%). This is the first time since the 2008 Global Financial Crisis that all four broad equity indices finished the year down.

While some economic indicators were mixed, global growth remained positive for the year and domestic corporate earnings proved to be a bright spot, even excluding the impact of tax cuts. Despite these positive undercurrents, stock markets pulled back on growing concern over future growth. Rising interest rates (a result of the Federal Reserve normalizing monetary policy), combined with political uncertainty across the world from trade wars, Brexit and more, weighed on markets.

Economic data outside the U.S., while not as strong as in 2017, was broadly positive. In the Eurozone, GDP growth across the 19 members grew at an annualized rate of 1.6%, and unemployment continued to decline. In Japan, economic growth rebounded during the last months of the year as consumer spending increased. Monetary policy within Europe and Japan remains stimulative, in stark contrast to the Federal Reserve, which raised rates four times in 2018. Although the Bank of China maintained its stable outlook for GDP growth in 2019, there were signs of an economic slowdown, as policies to curb credit growth, reforms and trade disputes with the U.S. impacted consumer and manufacturing activity.

Our largest investment option, the Balanced Pool, maintains a diversified portfolio that includes exposure to the equity markets described above, as well as more conservative asset classes such as U.S. Fixed Income. The fourth quarter provided no area of safety, reducing all institutional portfolios. For the year the Balanced Pool lost -6.9%. While absolute results were negative, we delivered strong execution in a difficult market environment. The Balanced Pool exceeded its target benchmark over the three, five, seven and 10-year periods. Much of this success is attributable to active management of equities and strong performance in alternative areas.

Our Socially Responsible Investment Pool, designed to meet Environmental, Social, and Governance needs while also providing competitive economic returns, lost -9.5% on the year. Our Intermediate Pool, designed to meet the expectations of donors with a grantmaking horizon in the three to seven year range, lost -1.7% last year. The Foundation’s Short-Term Pool, which is intended to preserve capital for donors with very short grantmaking horizons, gained 1.7% for 2018.

The Foundation’s entirely passive Index Pool is down -6.9% over the past 12 months. Our Growth Pool, with more than 80% of the portfolio in equities, lost -8.3% for the latest 12 months. In 2018, Seattle Foundation established significant new fund relationships, including 10 Family Foundations and new Corporate Foundations for F5 Networks and the Center Art Foundation for the Chihuly Garden and Glass. We also attracted new organizational support for our pooled funding efforts from national leaders like the Ford Foundation, Bloomberg Philanthropies and Hilton Foundation.

We welcomed a dynamic new leader who will deepen our impact with the arrival of Kris Hermanns, our Chief Impact Officer, who formerly led Pride Foundation. We also welcomed new members of our Board of Trustees, Colleen Echohawk, Executive Director of Chief Seattle Club, and Kelley Hall, Senior Vice President, Chief Accounting Officer and Treasurer at Nordstrom, Inc.

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. Sincerely,

 Kirstin Sandaas signature

 

Kirstin Sandaas, Chief Financial Operating Officer