Asset Management
It was in late 2000 that the Foundation received the amount of $1.4 billion from the Chagnon family. The Board of Directors established an Investment Committee whose main role is to propose and implement an Investment Policy. This policy is based on a Statement of Investment Principles issued by the Board of Directors and updated in 2005 and 2008.
As at December 31, 2007, the Foundation’s financial statements showed close to $150 million in disbursements on philanthropic activities.
According to its Financial Guidelines, the Foundation plans to spend up to
$75 million annually (adjusted for annual inflation) on its philanthropic activities between now and 2012.
Statement of Investment Principles
The Statement of Investment Principles (the “Statement”) contains all of the principles, opinions and practices used to manage the Foundation’s investments, to establish, review and implement its investment policies and strategies, and to provide information to Board members. The purpose of the Statement is to ensure that all stakeholders’ actions are consistent and aligned with the Foundation’s goals.
The Statement sets out the Foundation’s performance objectives. The Foundation’s investments (the “Fund”) are intended to generate returns net of inflation in order to finance the day-to-day operations of the Foundation and its programs, and at the same time afford a reasonable degree of assurance (as far as possible) that the Foundation’s assets will retain their real value.
The asset allocation policy is intended to have the greatest impact on returns and, of course, risk. The allocation takes into account the following elements:
- The Fund’s objectives
- The Foundation’s commitments
- The risk tolerance of Foundation directors
- The risk/return trade-off
However, given the Fund’s objectives and the Foundation’s commitments, we believe it is desirable and prudent to assume a certain degree of risk by investing a reasonable proportion of the Fund in equity investments which offer the best chances of increasing returns, as well as in unconventional asset classes in order to obtain better diversification and to increase the possibility of generating a return adjusted for a higher risk level.
Higher risks generally translate into higher returns. Since equity investments are usually riskier than fixed income investments, they should generate higher returns in the long term. However, a great deal of focus is placed on risk management—for instance, through substantial diversification, careful implementation, and an objective analysis of the various types of investment in the portfolio, as well as quantitative and qualitative analyses of the Fund as a whole.
The various portfolio components are managed primarily by external managers, who adopt various strategies according to the markets in which they operate. Some opt for active management; others, passive management. The risk associated with active management is controlled through the meticulous screening of managers, whose integrity is beyond reproach, and rigorous management procedures. A monitoring system allows the Board to confirm that managers are still able to meet the objectives assigned to them.
Since the Foundation’s commitments are long-term, it may be appropriate to invest in securities with limited liquidity in an attempt to increase returns. A lack of liquidity is, however, a risk that must be carefully managed to ensure the Fund is able to offset its costs.
It is also important to avoid conflicts of interest among people with discretionary power in managing the Fund. We therefore take the necessary measures to prevent individuals from finding themselves in a true conflict-of-interest situation.
Performance measurement and evaluation are a key part of monitoring the investment policy and management products. At least once every quarter, the Fund’s performance is measured and analyzed in order to take stock of sources of added (or reduced) value.
Implementation of the Investment Policy is key to the success of our strategies. The relevant procedures are set out in a written document and reviewed on a regular basis.
Excerpt from the Investment Policy
Preamble:
The investment policy (the “Policy”) describes the policies used to manage the Foundation’s investments (the “Fund”). Its provisions reflect the Foundation’s investment principles. All individuals involved in managing the Fund, including the Board of Directors, Foundation employees and external service providers, must adhere to Policy provisions. The Fund is managed in accordance with all applicable laws. In the case of conflict, the latter take precedence over Policy provisions.
Returns:
The Fund is intended to generate returns to finance the day-to-day operations of the Foundation and its programs, and at the same time afford a reasonable degree of assurance (as far as possible) that the Foundation’s assets will retain their real value. Disbursements are sensitive to inflation. The Foundation might decide to increase its disbursements, thus reducing the likelihood of its continued existence in the long term.
Governance and Responsibility:
The Governance section of the Policy describes the responsibilities of the various Fund stakeholders: the Board of Directors, the Investment Committee, senior management, external managers and the custodian of funds.
The Board of Directors delegates overall responsibility for management of the Fund to the Investment Committee. However, it retains the following responsibilities, among others:
a) Appointing the members of the Investment Committee and the Vice-President, Investments, ensuring that the Audit Committee Chair also sits on the Investment Committee
b) Approving the Statement of Investment Principles
c) Approving the Policy
d) Ensuring compliance with the Policy and documentation related to its implementation through an external audit.
The main responsibilities of the Investment Committee are as follows:
a) Overseeing all Fund activities according to Policy regulations
b) Periodically reporting to the Board of Directors on management of the Fund
c) Annually reviewing the Policy and recommending changes to the Board of Directors as needed
d) Based on recommendations made by the Investment Directorate, approving the selection of main service providers, including external portfolio managers.
The Investment Committee has delegated due management of the Fund and implementation of the Policy to the Investment Directorate. The latter provides support, transmits all relevant information, reports on its activities, and submits recommendations to the Investment Committee.
External managers are mainly responsible for building the portfolio according to the provisions of the management mandate, the Investment policy or other applicable investment guidelines.
The custodian of funds is essentially in charge of keeping assets safe, transferring funds between investment managers and the Foundation according to the Investment Directorate’s instructions, and ensuring transactions are carried out according to the instructions of the Investment Directorate or external managers.
The Investment Directorate, on its own initiative, or at the request of the Board or the Investment Committee, can call on the services of other experts in fields such as performance evaluation and risk management. The responsibilities conferred on them are described in a written mandate. (In this regard, it should be noted that an independent firm has been hired to specifically monitor hedge funds with a higher operational risk than conventional funds).
Risk:
Risk management is an essential component of the Investment Policy and many sections are devoted to the topic.
- Market risk is managed through a sound diversification of asset classes with uncorrelated returns, as well as a rebalancing program ensuring long-term stability.
- The risk of active management within each asset class is mainly managed through diversification of management products.
- Active risk is also managed by management mandates which generally set out the diversification provisions in each manager’s portfolio.
- Exposure of the Fund to foreign investments increases the portfolio’s level of risk in the short and medium term, because of exposure to foreign currencies. The Fund’s exposure to foreign currencies is therefore limited (but not completely eliminated) in its benchmark portfolio.
- A total risk-management program is followed. Based on industry standards, this program involves as comprehensive as possible a review of all of the Fund’s assets in order to ensure they are well diversified and not unduly exposed to common risk factors—ranging from a company or an industrial sector, to a geographical area or an economic variable such as a currency, a commodity price or an interest rate.
Benchmark Portfolio:
The benchmark portfolio is as follows:
| Asset Class / Group |
Target Allocation |
|
| Money market and Canadian bonds |
18% |
| Other bonds |
6% |
| Fixed income |
24% |
| Shares from developed countries |
39% |
| Shares from emerging economies |
8% |
| Private investments |
10% |
| Real estate |
5% |
| Variable income |
62% |
| Other specialized investments |
14% |
The benchmark portfolio gives an indication of the long-term asset allocation strategy. In the shorter term, deviations can be expected, given external cash flows and variations in returns according to asset classes. To ensure that such deviations do not unduly alter the Fund’s risk/return profile, a rebalancing policy has been developed with specific measures to keep the portfolio on target.
Social Responsibility:
The Foundation is a socially responsible investor. Investment managers who manage part of the Fund in a separately managed account are given specific instructions not to invest in companies whose activities are largely tobacco-related.
The investment managers may exercise voting rights acquired through Fund investments. When appropriate, they must vote in favour of any proposal that, in their opinion, will increase the value of a given share, and against any proposal that will reduce its value or that does not respect their management mandate.
Evaluation and Monitoring:
The return on each management product, asset class, and the Fund as a whole is assessed at least once a quarter. The market value of investments is calculated on at least a quarterly basis. In the case of shares that are not regularly traded on public markets, the methodology applied conforms to industry standards. Results are evaluated in relation to target objectives for each management product, asset class and the Fund as a whole.
External investment managers who provide services to the Fund are required to adhere to the above provisions, unless they have received written authorization from the chairman of the Investment Committee to do otherwise, in light of their conflict-of-interest policy. Under all circumstances, managers are required to uphold the CFA Institute’s Code of Ethics and Standards of Professional Conduct.
At least once a year, the Investment Committee holds discussions on the Policy—particularly significant changes in the Fund’s objectives, the Foundation’s risk tolerance and long-term market perspectives.
Financial Guidelines
The Foundation’s Board of Directors has adopted specific financial guidelines to allocate up to $75 million a year (adjusted for annual inflation) to philanthropic activities between now and 2012.
Amounts per Strategy
| |
Millions ($) |
Proportion (%) |
| Mobilizing local communities |
51.5 |
75% |
| Mobilizing society |
17.2
_________ |
25%
_________ |
| Subtotal |
68.7
________ |
100%
_________ |
| Overhead and operating costs |
6.3
_________ |
|
| Total amounts for philanthropic activities |
75
_________ |
|
To see the financial statements as at December 31, 2010, click here.
To see the financial statements as at December 31, 2009, click here.
To see the financial statements as at December 31, 2008, click here.
To see the financial statements as at December 31, 2007, click here.