report of the investment council
2019 Results
To restate our comment from the 2017 and 2018 reports, “Many studies suggest the markets are not priced to provide traditional levels of expected returns, given recent valuation levels and the current state of the global economy.” As if to demonstrate that we are indeed in unusual times, the financial markets proceeded to provide a blowout set of returns in 2019, following one of the worst years on record in 2018.
The Foundation portfolio earned 20.0% in 2019, exceeding our blended benchmark index* return of 17.3%. Our 2019 return is reflective of one trait the portfolio has always exhibited: a broadly diversified exposure. Returns across the entire spectrum of financial assets were favorable in 2019, whether measured by security type, geography, investment style, or market capitalization. For the year, every one of ECF’s holdings produced a positive rate of return. Large capitalization domestic equities had a particularly strong year. The same factor that caused the S&P 500 Index to lag in 2018 — that it increasingly resembles a highly concentrated portfolio of large cap stocks — helped it to achieve pride of place in 2019. While we have a nontrivial exposure to the S&P 500 Index, it is not a material overweighting, in keeping with ECF’s investment philosophy.
As you’ll see in the chart below, ECF’s portfolio returns compare well to our peer community foundations, particularly over the longer time periods, performing better than other managed portfolios and the market indices.
*The Foundation’s Blended Benchmark Index is a weighted average of the market indices used to measure portfolio performance.
The Foundation currently uses a 5% spending rate on the rolling, three-year balances to calculate spending from our endowed funds. Our current three-year average return of 9.4%, exceeds the blended benchmark* return for this period (8.6%), enabling ECF to meet our 5% spending obligation while continuing to grow the fund assets participating in ECF’s portfolio.
2020 Outlook
The last eighteen months have produced a great roller-coaster ride for the financial markets. At the turn of the year, no one had heard of COVID-19; the current version of the coronavirus sweeping the planet. In very short order, it has established itself as a factor in producing material changes in our lives. The financial markets have been very mindful of this new challenge, and valuations have gyrated — sometimes violently — to both the up- and downside. We have no more idea than anyone else of how this will play out. For the time being and in the absence of substantive data about the virus mortality rate, which will prove to be the key variable, we are maintaining the status quo in the portfolio and in our expectations of the returns the financial markets should provide over time. The data we consider includes times of boom, bust, enthusiasm, deep despair, war, and peace. Our optimism for the long run, which is the investment horizon of an entity such as the Foundation, remains unbowed.
2019 Financial Review
Building on the 20% investment return and a year of strong giving to ECF’s funds, total assets increased $6 million in 2019.
ECF’s liabilities include ECF’s funds for other nonprofits as required by accounting standards. At year-end 2019, those funds had total assets of $6.2 million. The nearly $2 million increase in liabilities is due to investment earnings on funds for nonprofits and the addition of a new, $1 million nonprofit fund. The increase in total assets, offset by the increase in liabilities, yielded a net asset increase of $4 million.
Revenue growth in 2020 reflects a $.5 million increase in gifts to ECF’s unrestricted endowment funds and a $.4 million increase in additions to donor advised funds. Total donor advised fund contributions in 2019 were $1.1 million.
Total 2019 expenses increased $200,000 due primarily to a $90,000 increase in ECF’s competitive and strategic grants, and a $65,000 increase in grants issued from donor advised funds. Salaries and benefits increased slightly as several part time staff members increased their hours.
Contributions to the Foundation’s Annual Fund held steady in 2019, reflecting another year of outstanding donor support for the Foundation’s work to help Evanston thrive as a vibrant, inclusive and equitable community. The Annual Fund provides critical financial resources for the ECF’s operations, including the cost of delivering our programs and grantmaking opportunities.