Our investment approach has been developed to help us achieve our vision. We rely on investment returns to provide the grants and operating budget each year, making investment performance critically important. The Foundation’s Investment Committee continuously reviews and adopts global best practices in the oversight of the Foundation’s portfolio.
Our Investment Mission is to prudently preserve and grow our capital in order to make grants, now and in the future.
Our investment goals are to:
We aim to achieve a real return after investment and operating expenses (and tax, if any) of at least 3.75% per annum over rolling ten year periods.
We believe a set of well-founded investment beliefs provides a sound foundation for investment success. In particular we believe:
Reflecting our investment beliefs, the Foundation is a long-term investor. We use an independent Investment Consultant, Mercer to assist in the design of the investment strategy and the selection of Investment Managers.
We aim for an investment strategy that includes a diverse set of investment assets. We believe the investment structure should not be so complex as to introduce unnecessary costs. We prefer sector specialist Investment Managers. Manager-of-manager strategies are considered a useful means of implementation. Active management is favoured, but if considered appropriate, passive management may be used in some cases.
We’re committed to integrating consideration of environmental, social and governance (ESG) issues into our investment decision making process and developing guidelines to integrate ESG considerations across different types of investments.
As a long-term investor, emphasis will be given to monitoring our investment strategy and investment managers over the medium-to-long term, although short-term monitoring also has a role to play at times.
We recognise we’re fiduciaries and our fiduciary responsibility does not end with maximising return and minimising risk. We also recognise economic growth can sometimes come at a considerable financial and nonfinancial cost to communities and the environment.
We believe efforts to mitigate environmental degradation, address social issues and promote healthy communities should be incorporated as part of business and investment decision making. We believe management, directors, employees and investors should consider these issues in the pursuit of financial objectives.
We believe in light of the social, environmental and economic challenges of our time, fiduciary responsibility in the coming decades will dictate the integration of prudent financial management practices with principles of environmental stewardship, concern for community, and corporate accountability to shareholders and stakeholders alike.
We believe foundations have a particular role to play in this process, seeing their mission not only in terms of the uses of income to fund programs, but also in terms of the ends toward which endowment assets are managed. Wealso believe the Foundation creates substantial social benefit through its grants and related philanthropic activities. We consider it is essential to harmonise philanthropic mission and endowment management.
We seek to avoid excessive volatility in returns, both within years and between years. Accordingly, investment decisions aim to limit the downside risk of the Fund by diversification across investment sectors and local and global economies. We’ve assessed our investment risk profile as medium, as follows:
The Trustees have agreed a target allocation of 55% to growth type assets is appropriate for the long-term target SAA, balancing the need to earn income to meet desired distribution levels and operational expenses with a desire to preserve and grow capital over time.
The portfolio is made up of three main asset groupings:
In our fiduciary role we believe environmental, social and corporate governance (ESG) issues materially affect the performance of investment portfolios and in support of these beliefs the Foundation is a signatory to the United Nations Principles for Responsible Investment (UNPRI). The UNPRI embodies an internationally accepted framework for investors to manage ESG issues in a manner consistent with improving long-term investment returns. By becoming a signatory, we will, over time, apply the following principles:
Investment managers are selected with consideration given to their beliefs and practices relating to ESG issues. We are cognisant of the fact many of the managers selected by the Foundation see the greatest investment promise in companies with enlightened management that recognise sustainable practices and sound employment policies are in the best long-term interest of their companies and shareholders. The rising importance investment managers and company management each give to these policies is leading to a convergence between the portfolios of social investors and mainstream investors.
We may hold investments through pooled funds as an effective and cost efficient means of accessing some global markets. For such funds we recognise we will have no influence over the structure of the product or securities held in the fund.
Among the various avenues to try to generate social return through investing, the Foundation favours proxy voting aligned with its core mission. This strategy appears to have an increasing influence on management decisions, is unlikely to degrade investment returns, and can be accomplished with minimal administrative burden.
All investment managers must actively vote using guidelines developed around best practice fiduciary standards and may use the expertise of specialist providers of research and proxy voting services.
In general, we prefer engagement as the best way of getting companies to improve their behaviour, rather than exclusion. Our exclusions policies are guided by:
In addition, we believe taking a sustainable investment view is more likely to create and preserve long term investment capital. Taken together, our purpose, vision and investment beliefs form the basis for our Responsible Investment Exclusions Policy.
Consistent with our purpose, vision and investment beliefs, we may exclude investments in companies that do substantial and irreparable harm to society or the environment, provided it does not materially worsen the diversification or robustness of the total portfolio, and can be effectively managed.
In determining whether to exclude any investment on this basis we would consider:
We have determined the following products should be excluded on this basis - companies manufacturing cluster munitions, nuclear explosive devices, tobacco or civilian automatic and semi-automatic firearms, magazines, and parts that can be used to assemble prohibited firearms. We may consider additional products or services for exclusion in future against this policy framework.
Our investment strategy contemplates an asset allocation which is likely to generate returns that demonstrate volatility over the short term. In contrast we expect distribution requirements to remain relatively over time. In order to account for investment risk or volatility, the assets of the Foundation are to be invested in such a manner as to achieve over the medium term a level of return in order to meet:
Fluctuations in investment returns directly impact the level of income available for distribution, and also the Real Capital Base and hence the ability to grow distributions over time.
The Capital Base of the Foundation was set at $371.422 million as at 31 December 1996. In February 2013 a Special Fund of $25 million was established as a response to the Canterbury Earthquakes. This reduced the Capital Base by $17.615 million to $353.807million.
The Trustees have a desire to maintain the Capital Base in real terms and the Inflation Reserve is the amount required to achieve that. Together the Capital Base and Inflation Reserve amounts represent the Real Capital Base.
The Foundation requires funds for distribution on a regular basis. The Trustees’ current policy is to distribute 3.75% of the lesser of:
In the event annual income in any year is insufficient to meet distribution requirements this will be reflected as a deduction from the Accumulated Income Reserve.
We established the following Reserves to facilitate the achievement of our Distribution Policy:
The Inflation Reserve shall be increased by an amount equal to the sum of the Capital Base plus the Inflation Reserve multiplied by the annual percentage change in the CPI. This ensures the Real Capital Base retains its purchasing power over time. If income is insufficient to make this adjustment, the Accumulated Income Reserve should be reduced accordingly.
Each year, any excess income, after distributions and the adjustment to the Real Capital Base, shall be credited to the Accumulated Income Reserve. This Reserve will help offset income fluctuations in future periods. In particular, this reserve can be used to meet distribution requirements during years with low or negative investment returns.
There is no fixed target for the value of the Accumulated Income Reserve, but in the normal course of events, a balance between two and four year’s annual spend (grants plus operational expenses) is thought to provide sufficient comfort to the Board that it will be able to maintain its Grants policy through a full investment cycle.
The Statement of Investment Policy and Objectives (SIPO) prepared by the Trustees of Rātā Foundation sets out the objectives, policies and beliefs governing decisions about investments in relation to the Foundation’s assets.
The SIPO takes account of the requirements of:
Our SIPO can be found here.