MaineCF’s Investment Committee exercises oversight and control of the foundation’s investment funds. The committee, which reports to the MaineCF Board of Directors, currently has nine members. All are year-round or seasonal Maine residents. Elizabeth Hilpman has served as chair of the investment committee for the past seven years. Jim Geary is MaineCF’s vice president, chief financial officer and director of investments. Peter Rothschild is the foundation’s chief investment officer.
In this Q & A, Hilpman, Geary, and Rothschild highlight the foundation’s long-term investment perspective and some of the challenges and successes of the investment program.
What is the role of MaineCF’s Investment Committee and how has MaineCF’s investment program been adjusted to respond to the volatile markets?
Elizabeth Hilpman: The Investment Committee plays many roles: policy making, setting the asset allocation and liquidity targets, shaping the role of the consultant, and monitoring the overall performance of the portfolio. The committee is a dedicated group of current and former MaineCF board and advisory members. Most have substantial professional investment experience. Their complementary skill sets empower the foundation to pursue superior risk-adjusted results and efficiently respond to volatile markets in a deliberate and measured approach.
How long has MaineCF been investing its assets?
Jim Geary: At the end of 1984, the first full year the foundation was in business, we had an investment portfolio of $535,000. The portfolio grew steadily and by the end of 1996 was over $30 million and included diversified investments in publicly traded equities around the world. In 1997 we further diversified by adding allocations to venture capital/private equity and marketable alternatives. Looking back, 1997 was the year our current thinking about diversification was implemented.
What is the primary goal of the community foundation’s investment program?
Geary: Our Investment Policy Statement says it best: “The long-term investment objective of the Maine Community Foundation is to preserve and enhance the real value of the assets of the foundation over time, in order to provide a sufficient rate of return for fulfilling the philanthropic purposes of the foundation.” In short, we want investment returns to earn 5% in real terms after accounting for the impact of inflation. Five percent is the approximate amount required to cover grants (currently 4% based on a 12-quarter rolling average) and the administrative fee of roughly 1% to cover the operating expenses of the foundation.
How do our investment results compare to those of other community foundations?
Peter Rothschild: MaineCF is a long-term investor. Other community foundations may often report higher short-term returns, but MaineCF’s investment results compare very favorably to our peers over longer terms. For example, over a 20-year span, MaineCF shows a 6.8% rise compared to 5.5% for the average community foundation.
Does MaineCF offer a socially responsible portfolio?
Geary: We do. The screens include traditional ESG (Environmental, Social, and Governance) as well as fossil fuel screens. We have offered an ESG-screened portfolio since the late 1990s. We added a fossil fuel screen to the portfolio in 2015. At the end of 2019 we selected a new manager to run the overall strategy. Their track record dating back over 20 years is impressive.
What lessons were learned from the 2008 recession and the current COVID-19 crisis?
Rothschild: There were many lessons learned in 2008 and others learned long before that.
- If it sounds too good to be true, it probably is not true. When investment valuations get out of line, you must pay attention and consider defensive strategies. We did this in 2007, before the market crashed in 2008, and we did it again in 2019, before the COVID-19 crisis hit in 2020.
- Don’t panic and sell good investment at a loss. We had enough liquidity to take advantage of market dislocation to buy good assets at a discount in both 2008 and 2020. None of us know when the markets are going to turn volatile. As a result, we have built the MaineCF portfolio to handle market disruption through diversification and liquidity.
- During a crisis, you must spend time looking forward. After the crisis hits is not the right time to become defensive. Chances are good it is too late.
- Diversification always matters. There are times when you will not be rewarded for diversification, which is why we established a target asset allocation for the portfolio. We agree on the allocation when markets are not stressed and work hard to stick to the allocation, or pretty close, in good times and bad. The target allocation gives us the best chance to achieve long-term goals.
The foundation changed investment consulting firms last year from Cambridge Associates to Monticello Consulting Group. Why?
Hilpman: Cambridge Associates was our consultant for 20 years. They provided excellent service and advice for the entire length of our relationship. Changes at the firm led the MaineCF Investment Committee and staff to consider other options. Monticello rose to the top of the list during the four-month evaluation process, which included on-site interviews. In the end, they emerged as a good fit for the foundation in terms of the number of clients, their client asset size and, most importantly, the overall approach they take in their investment analysis.
What have you been telling donors concerned about their funds?
Geary: We’ve had a limited number of phone calls from donors, but for those who ask, the answer is: We are long-term investors. We have a diversified portfolio that is designed to hold up in volatile markets. We maintain significant liquidity so that we can buy assets when they are undervalued. We hold a sufficient amount of cash and bonds in the portfolio to cover several years of grantmaking, so we are not forced sellers of our assets. Lastly, we hold an operating reserve that is equal to almost a full year of our operating budget. The reserve will help fund the operations of the organization for an extended period of time.
Jim Geary at the Charlotte Rhoades Butterfly Garden in his hometown of Southwest Harbor. Geary is in his 19th year as CFO at the community foundation. Photo Sijie Yuan
