Our ability to achieve our mission depends on a variety of factors, but one of the most fundamental is the performance of Irvine’s investment program, which produces the resources that allow us to make grants. For this reason, we’d like to draw attention to the annual letter from Chief Investment Officer John Jenks that was included in our recently posted 2011 Performance Report. It offers insights into how we manage our $1.6 billion endowment in today’s challenging financial markets and outlines some of the steps Irvine’s investment team is taking to produce a consistent rate of investment return in support of the Foundation’s mission.
Letter from the Chief Investment Officer and Treasurer
2011 was a challenging year for the global economy and most financial markets. Consequently, most private foundation endowments earned less in 2011 than they paid out. Irvine’s investment portfolio performed better than most — our returns were in the top 20 percent — but even that was not good enough to produce returns high enough to cover the Foundation’s target payout of 5.5 percent. I’d like to use this annual letter to describe some of the challenges we faced in 2011 as well as some of the steps Irvine is taking to produce a higher rate of return going forward.
While extremely low interest rates aided many homeowners and the economy in general, they had an adverse effect on many foundations’ long-term investment programs. Returns on the vast majority of fixed-income investments, the safest and most predictable part of typical large investment portfolios, were much less than the payout rates of foundations, and that had the effect of pushing many to invest more in generally riskier investments like equities. Although Irvine largely resisted this move and benefited from that, 2011 showed just how challenging it is — and likely will continue to be — to earn even the IRS minimum required payout of 5 percent, let alone offsetting the effects of inflation.