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Well-defined investment and spending policies are critical to a foundation’s success in achieving its objectives. The Flinn Foundation’s long-term objective is to preserve and enhance the real (inflation-adjusted) purchasing power of its endowment for the benefit of future generations. At the same time, it seeks to provide a stable source of funds to support the Foundation’s current grant programs and supporting activities. The task of balancing these two objectives is governed by the Foundation’s investment and spending policies.
The Board of Directors established the primary investment objective of attaining an average real (inflation-adjusted) total return of at least 5.5% per year, net of management fees, over rolling 10-year periods. Toward this objective, the board adopted a long-term strategy of maintaining a highly diversified portfolio. Over the long-term, it is believed that diversification will increase returns and decrease the overall volatility in the portfolio. The portfolio is diversified both by asset class (e.g., equities, fixed-income securities, cash equivalents) and within asset classes (e.g., equities by geography, economic sector, or capitalization).
Investment policy and spending policy share a primary goal of minimizing volatility. A private foundation is required by law to distribute at least 5% of the average market value of its investment portfolio annually on grant programs and supporting activities. The Foundation’s spending policy, based on 5.5% of the three-year moving average of its market value of assets, seeks to minimize annual volatility of spending in response to unusual gains or losses in the investment portfolio in a given year.
Adjustments may be made periodically to the target spending level to reduce accumulated shortfalls or overages in charitable distributions that result from the difference in the Foundation’s spending policy (designed to smooth out spending) and the federally mandated payout requirement. In addition, the spending level may be increased in order to meet a special disbursement requirement that enables private foundations to reduce the federal excise-tax rate from 2% to 1% of investment income by increasing payments to grantees.
During 2004, the value of the endowment increased from $168.1 million to $178.4 million, reflecting a continuing recovery in conventional investment markets. The Foundation’s investment portfolio earned a 12.7% nominal return in 2004, significantly outperforming the 8.3% return of a U.S. portfolio composed simply of 60% S&P 500 stocks and 40% Lehman Aggregate bonds.
The Foundation awarded $1.9 million in new grants and made cash payments of $7.8 million toward current and prior-year grant awards. Expenses for specific programs administered by the Foundation and general administrative expenses totaled $1.5 million and $1.3 million, respectively.
The Foundation retains Cambridge Associates to provide independent counsel on investment matters and Ernst & Young to audit the Foundation’s financial statements and complete the Foundation?s tax returns.
Requests for additional investment and operating data should be addressed to the Foundation’s Chief Financial Officer.
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