Huron University College Foundation

Report of the President

By Richard G. Lucas '69
President, Huron University College Foundation

Background

The purpose of the Huron University College Foundation is to receive, invest and manage endowment funds in order to assist Huron University College in attracting students and maintaining its standing as a first-class liberal arts and theological university institution; and to assist the college in its fundraising activities.

The Investment Fund

The value of the Investment Fund rebounded in 2009 and 2010 with the strength in both the equity and bond markets.  Part of each year's increase (as in previous years) was through donations. Endowment donations received in 2010 were $1,103,193.

Year-End Value
2003     6,063,867
2004     7,361,069
2005     8,363,273
2006   10,234,939
2007   10,704,237
2008     8,255,017
2009     9,916,303
2010   11,496,193

Note that the Foundation administers certain endowment funds and trust funds on behalf of the College.  As at year-end 2010 the split in Fund Capital was $1,907,459 for the College and $9,588,734 for the Foundation for a total of $11,496,193.  

Investment results

The investment policy of the Foundation Endowment Fund is a balanced one with exposure to bonds, Canadian equities and foreign equities.  It is intended to provide, over the longer term, a balance between investment returns and an acceptable level of risk. 

The total return of the portfolio for the past 12 months to March, 2011 was 10.5%.  The Canadian stock market was particularly strong, returning 20.7%.  Declining bond yields caused the Canadian bond market to return a solid 6.7%  The disappointment again was foreign equities.  The MSCI World returned a decent 8.4% in Canadian dollars in this period.  But our manager's return was only 5.9%.

The underperformance in foreign equities caused the portfolio to underperform its benchmark again (10.5% vs. 11.2%).  Canadian equities performed in line with their index, still a disappointment.  As a result, the Foundation did a formal management review and selected Guardian Capital to be our new investment manager.

Asset mix, i.e., holding a significant weighting in equities, has been a positive in the past couple of years with the rebound in equity markets.  The portfolio has been roughly 65% equities and 35% fixed income over the past year.   The benchmark mix has been 65:35, and it is a mix which has served the Endowment Fund well in previous periods.

As of July 1, 2011 that mix becomes 60:40.  This was the result of a formal review of risk and returns in the markets by the Investment Committee.   Within the policy constraints, the manager is able to exercise some discretion in weightings of different sectors of the portfolio.   

Investment Outlook

The big picture is that the global economies are in the early stages of an expansion which should last several years.  The recovery is starting to take hold and to broaden out, spurred by central bank liquidity and low policy interest rates.  The role of fiscal policy is mixed depending on the region: loose in the United States; tight in parts of the EU.  However, it is clear that this is a slower than normal expansion (slower than I forecast over a year ago).  And there are hurdles that are unique to this particular cycle, e.g., unwinding the housing bubble in the U.S. and unwinding huge government deficits in some countries.

While we could see a slowdown in the U.S. and elsewhere over the next couple of quarters, this is probably more a pause in a cycle rather than a slide into recession.  We certainly don't see a need to change our investment stance.

Corporate profits are starting to rebound and should experience decent growth during this cycle.  The yield curve could remain fairly steep as central banks keep short rates low and the bond market tries to absorb all the new government debt.  This does not suggest that equity markets will continue their current upward trajectory without any type of a pullback. 

In this environment equity market returns should both be positive and superior to fixed income returns.  As such, we remain committed to an asset mix policy which favours equities over fixed income.  It is a policy which has served the Investment Fund well in previous years and should do so going forward.

It is worth adding that we regularly monitor expected returns from various asset classes.  At present, long-term Government of Canadas (a proxy for the bond market) are yielding just above 3.5%.  Some recent studies are forecasting Equity returns in the 6% - 8% range.  The level of these returns is a key factor behind the size of the Investment Fund’s payout. 

Payout

At its meeting in December 2010 the Foundation decided that the annual grant to the College for the 2011 calendar year for programs and student services (eg. scholarships, bursaries, etc.) would remain at 4% plus 1% to help support the administration of the Foundation.  (These amounts are reviewed annually).

In dollar terms the Annual Grant to the College in 2010 was $514,848, up from $415,360 in 2009.

The grant calculation is based upon a rolling 3-year average of the capital in the Foundation for endowments with a payout. (Payouts for some recently established endowments have not yet begun.)  

Stewardship

Huron makes a point of maintaining strong relationships with its donor base and has a strategic growth objective in its endowments.  The Foundation office communicates regularly with donors with respect to a long-term view that is inherent in endowment funding and performance. 

Our annual and customized report to each donor provided details and background on their individual endowment together with additional information on the work of the Foundation.  Donors also receive other Huron communications on a regular basis including the annual alumni and friends newsletter and invitations to special events.

Continuing and consistent communication in both good times and bad is a key factor in positive donor relations in this respect.  Moreover, endowment holders in many cases are continuing to make donations to their individual endowment so that, together with investment income and any planned gift, it continues to grow in the long run.

It is worth noting that the Foundation now is entrusted with funds for roughly 187 scholarships, bursaries, and other endowments for both FASS and Theology.  Six years ago that number was about 70.

For calendar YTD (to June 14), the Foundation has received $356,110 in contributions (cash received) to endowments.  Included in this figure are a number of contributions to establish The Chair in Islamic Studies, as well as $15,000 from CIBC for the CIBC Bursary and $14,000 from the Anglican Foundation for theology.  

Audit

I would like to report that the 2010 audit and management letter prepared by Deloitte and Touche LLP reported no issues. 

Personnel

All those Trustees whose terms expire in 2011 have agreed to reappointment for an additional three-year term:

1. Rea Godbold
2. Brian McGorman
3. William R. Stewart
4. James G. Thompson
5. Mary Thomson

In addition, Rea Godbold has stepped down as Chair of the Audit Committee.  We very much appreciate his steady hand and contribution.  Taking over from Rea is Peter Fullerton who has extensive experience both as a CA and as a chair of another audit committee.

Finally, I would like to thank Ken Andrews and Darlene Whitfield of the Foundation office and Neil Carruthers and Jeff Malone of the College Administration for all their good work for the Foundation.

Respectfully submitted,

Richard G. Lucas, CFA
President
Huron University College Foundation