James E. Canales
President and CEO

Dear Friends,

The recent dramatic events in the financial markets have raised concerns about implications for the nonprofit community. In that context, I would like to use this quarter’s letter to describe how the Irvine Foundation’s grantmaking might be affected by the recent economic turmoil and how we intend to work with our grantees in confronting this economic uncertainty.

As a matter of policy, the Irvine Foundation has implemented several measures designed to minimize the impact that fluctuations in the financial markets would have on our grantmaking capacity. First, as an institution with a permanent endowment, we recognize the value of a highly diversified investment portfolio. Our 2007 annual report contains a letter from our Chief Investment Officer that describes how we have increasingly diversified the endowment in recent years. Like most endowments, ours lost value in the past year, but our diversification has protected us from the magnitude of losses the overall public markets are experiencing. For example, for the one-year period ending September 30, 2008, our endowment was down just more than 10 percent, compared with a decline in the broad market indices of more than 19 percent.

Second, similar to many other foundations and large endowments, Irvine utilizes a formula based on rolling averages to calculate our annual grantmaking budget. As a result, our grantmaking may not increase as quickly as our endowment value during the good years, but conversely, the formula protects us from having to decrease our grantmaking significantly in times such as these. This approach is specifically designed to minimize disruptions to current and prospective grantees when the economy is bad, precisely the time when many nonprofits experience reduced income from a variety of sources. In fact, based on the formula, it is likely we may actually increase our grantmaking modestly in 2009 from 2008 levels.

Third, as we look to the future, Irvine will remain focused on the priorities we have established in our three core grantmaking programs of Arts, Youth and California Perspectives. I think it is critical that we stay focused on our long-term priorities. At the same time, our commitment will be enhanced by showing flexibility during these times of economic uncertainty. So, we will aim to stay attuned to our grantees’ needs and will help our grantees, on a case-by-case basis, adjust their grant objectives, budgets and timelines to new economic realities.

And finally, while we remain focused on our programs, we certainly won’t ignore emerging needs that are a direct result of the economic downturn. As one example, based on the relationships we have with community foundations across California, we can learn more about the immediate economic and social conditions facing many of California’s communities and determine if new partnerships are warranted.

In many ways, the current economic uncertainty highlights an important tension in philanthropy. In times of need, philanthropy is often asked to help those who are most affected, and rightly so. Yet, our long-term impact will always be greatest if we set ambitious goals and stick to them, including maintaining long-term partnerships with our grantees. This is a tension that has no easy solution and that requires ongoing attention. Our aim at Irvine will continue to be to strike the proper balance between flexibility and long-term focus. I am persuaded that doing so will ensure we can advance our mission of expanding opportunity for the people of California.

As always, I welcome your questions, comments or suggestions.

Sincerely,