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2014 Year in Review

A Look Back at 2014

Dear Colleagues,

How do you fix something that isn’t broken? When I was named interim president & CEO of the Irvine Foundation in February of 2014, my job was to help prepare the Foundation for our next leader. Little did I know that the next leader would be me! I remember the moment as the search process was nearing an end, when our board chair, Greg Avis, told me that the board wanted to consider me for the permanent job. He asked me to share what my plan would be for Irvine’s future.

At that moment I found myself asking how you fix something that isn’t broken.

It was clear to me that the Foundation was in a strong position, with talented staff and strategies that were paying tremendous dividends, thanks to the hard work and effectiveness of our grantees. For example, as you can see in this Year in Review, the state of California validated our Linked Learning strategy in 2014 by committing an extraordinary $250 million to help prepare students for college and career through its Career Pathways Trust (which was doubled to $500 million in 2015). This is the sort of leverage that we usually only dream about. We also refined and relaunched our Exploring Engagement Fund, which is helping nonprofit arts organizations engage new and diverse participants in the arts. And we are helping leaders across the state to pioneer new ways to provide vital preventive social services through an approach called Pay for Success, in which investors and donors provide upfront financing to evidence-based service providers with the agreement that governments will pay for success, when and if it occurs. If the projects don’t succeed, the government agencies don’t have to pay for them. These are exciting, innovative initiatives, and just a few examples of what we were working on.

Our challenge at Irvine is to make the best use of our relatively limited resources to take advantage of the enormous potential of the people and communities across California. This is no small task, but we are eager to tackle it. The quality of our staff enabled us to move a number of colleagues into new leadership positions during the year. Our programs are investing in grantees who are having real impact, which gives us a strong foundation (pun intended!) from which to ask tough questions that can lead to an ongoing refinement of our strategies to get even better results.

Because that’s what California deserves. This is such a big and dynamic state with limitless opportunities, but the problems that our grantees are grappling with are equally complex. To succeed, we know that we have to be nimble and responsive. Regardless of the success of our strategies and the accomplishments of our grantees, we know that we can never get complacent. Our strategies must and will adapt to meet changing needs, always in keeping with Irvine’s values and mission of expanding opportunity for the people of California. (Those adaptations have been a focus of our work in 2015, but this is a review of our 2014 work, so those details are for a different time and place.)

We also know that we have to be willing to fail, and we have to be honest with ourselves and our partners about what went wrong and what we’ve learned. This is not just a way to stay accountable to our board, our grantees, and the people they serve – it’s a way to continuously improve.

And so the question, “How do you fix something that isn’t broken?” really isn’t the question to ask at all. The question we find ourselves constantly asking each other is “How do we continue to learn, adapt, and increase our impact?” 2014 was a new beginning, in a way, but it was also a time to build on our success and start planning for the future.

That’s where the Irvine Foundation finds itself in the summer of 2015. We’re pleased with how far we’ve come, and we’re very excited about what comes next.

CEO signiture

Don Howard
President and CEO
The James Irvine Foundation

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$73,017,813 to 318 organizations

Pay for success

How did we do?

This year we are experimenting with a different approach to identify milestones achieved and areas of work that remain unfinished business at the end of 2014. In addition, we share “reflections and implications” for each program based on the assessment.

Read our 2014 annual performance report
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How did we do?

We launched an initiative called Pay for Success to find new ways to fund social service programs that make a difference.

Pay for success
Read more

We celebrated nine leaders who are successfully tackling our state’s challenges.

Meet the leaders

We re-launched our Exploring Engagement Fund, challenging arts organizations to find creative ideas for how to engage new and diverse participants in the arts.

Emerging lessons

Our arts grantee-partners found new and interesting places to engage their audiences.

Why "where"?
Pay for success

$250 million in new funding from the State of California to support bringing Linked Learning to more students in California.

Career pathways trust awardees

President Obama joined the call for more college opportunity for low-income students.

Read more

We launched the Voter Outreach and Technology Initiative (VOTE), to help find new ways to reach voters from traditionally underrepresented communities.

Read the blog post

The complicated ballot initiative process will be simpler, thanks to the work of our grantees.

Learn about the issue

In 2014, we welcomed our new president and CEO, Don Howard.

Read blog posts from Don Howard

We reorganized our team to focus greater attention and expertise on the areas in which we want to innovate and grow, while continuing to strengthen on our current work.

Read about changes at Irvine

We received candid feedback from our grantees, which will help us to improve our work.

See what they said

Our endowment and our grantmaking grew again in 2014.

Read our 2014 audited financial statements

A Letter from CIO & Treasurer John R. Jenks

2014 was an exciting year for The James Irvine Foundation and the performance of the endowment was a big part of that excitement. For several years I have been noting how well things have gone for most of the financial markets and for the returns of the Foundation’s endowment. Each year I have cautioned that the good times could not continue, and in 2014 I was wrong again. If you have to be wrong, that is the way to do it! I will not make a similar prediction for 2015, in part so that I will not sound stale or dour. My reticence is also driven by the fact that as I write this letter well into 2015, things continued to go well through June, and though July and August have been more volatile it is not certain that this recent trend will continue in the short term.

The economic and market conditions in 2014 and early 2015 provided meaningful opportunities to add value on both a relative and absolute basis. They also showed signs of increasingly less attractive absolute risk to return tradeoff. In other words, more investment risk has not produced a corresponding increase in investment returns. The U.S. economy continued its slow recovery, Europe continued its slow deceleration from a low level of growth, China slowed somewhat but remained opaque, and Japan began a massive stimulus program with marginal results. Commodities prices around the world started to decline in early 2014 and plummeted in later 2014, resulting in a significant slowdown in many emerging market economies. By the start of 2015 there were fewer and somewhat less attractive investment opportunities around the world. As a result of these developments, Irvine’s investment team has been slowly but steadily reducing the risk level of the portfolio over the last year. There will always be meaningful risk in the portfolio by its long-term orientation, but on a relative basis it is less risky now than over the last few years.

One thing I can say about 2014 is that it was unsustainably good on a relative basis and that the last five years are unlikely to be repeated over the next five years. Why does that matter? Irvine has a fairly aggressive payout target (5.5 percent of average assets) and therefore a high earnings target to support that payout over time. Irvine’s portfolio is designed with the objective of earning at least 5.5 percent above the rate of inflation over time. One of the key tenets of our approach is to take maximum advantage of opportunities when they are available so that when they are not the Irvine Foundation is not forced to take unnecessary risks. Given Irvine’s start as an agricultural entity the old saying “make hay while the sun shines” was a perfect motto for 2014. The portfolio returned 13.44 percent in 2014. That was 6.32 percent better than the average endowment and ranked in the top percentile of all endowments over $1 billion.

That sunshine came in the same four ways as the prior few years – patient long-term investing, appropriate risk taking, great investment partners, and a flexible and nimble decision making process. Two of these sources of return were critical in 2014. First, Irvine earned great returns on its private investments, particularly its venture capital investments. Most of these investments were originally made a number of years ago with the full knowledge that if they worked they would not produce great results for at least three to five years. Since Irvine has been around for almost 80 years, we can and should wait for great investments to perform. The second major source of returns was the flexibility that has been built into the entire investment program. From the Board through the Investment Committee to the staff and managers that execute the individual transactions, that flexibility empowered very profitable actions throughout the year.

Let me return to the “why does it matter?” question. If Irvine’s portfolio had produced average returns over the last five years it would have earned approximately $730 million. By almost any standard that would be great. With average returns, the Foundation would have been able to afford charitable expenditures of approximately $450 million. Instead, Irvine earned $1.03 billion over that five years. This enabled Irvine to make $35 million more in grants over the five years than it would have if we had produced returns in line with the industry average. Even more important, though, is how those returns have positioned the Foundation. Starting in 2015, Irvine is in position to make $12 million more in grants each and every year after, solely based on those above average earnings. Over the long run that is why it matters. Irvine and its talented program staff are better positioned to have impact and create a better California over the next five years, ten years, and beyond. There will certainly be years where Irvine’s portfolio does not exceed the average, but we will keep trying to achieve more, with the future of California in mind.

CEO signiture

John Jenks
Chief Investment Officer and Treasurer
The James Irvine Foundation

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Together with our grantees, we’re working to expand opportunity for the people of California

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