BOSTON -- The $620 million Boston Foundation recently revamped its investments, moving from a 50-50 stock-to-bond ratio emphasizing income to a 70-30 ratio with a priority on growth.
In the process, the community foundation, which makes grants to metro-Boston-based non-profits, went from using three Boston-based trustee banks to manage its money to 11 different management relationships, also Boston based. The foundation did have a 'buy Boston' mandate, said James Pitts, chief financial officer, but that wasn't the overriding factor in its selection of the managers.
"There is no give up here," said William McCarron, principal with Prime, Buchholz & Associates of Portsmouth, N.H., the foundation's consulting firm.
"The nature of the selection criteria was (at least) $500 million under management and $200 million in the product," said Mr. Pitts.
Little turnover sought
The foundation's trustees also wanted firms that exhibited little turnover of key investment personnel and good numbers for the one-, three- and five-year periods, said Mr. Pitts.
The foundation previously used the Boston Safe & Deposit Trust, State Street Bank & Trust Co. and Fleet Bank to oversee asset management.
The foundation hired State Street Global Advisors to manage 4.5% of the assets in a Russell 1000 index fund, 8% in an active large-capitalization growth equity fund and 6.25% in an active international growth. Grantham, Mayo, Van Otterloo & Co. LLC was hired to run 4.5% in core U.S. equities; and Boston Co. Asset Management will manage 8% in large-cap value equities, 10% in small-cap to midcap equities and 6.25% in international value stocks.
Essex Investment Management Co. will manage 10% in small-cap to midcap equities; Putnam Investments Inc. will manage 6.25% in international equities; and Wellington Management Co. will run 6.25% in international equities and 7.5% in a core domestic bond strategy.
Fleet Investment Advisors will manage 7.5% in a domestic bond-plus strategy; and Loomis, Sayles & Co. LP will split 15% of the assets between medium-grade bonds and global fixed-income securities.
Tilting to active
The foundation is betting that its stable of active managers can beat the market. "It's clear that the asset allocation is tilted to active vs. passive," said Mr. Pitts. "That was a conscious decision.
The Boston Foundation's performance has been good. For the five years ended June 30, the foundation earned 14.8% on its investments; the average foundation in its peer group earned 14.4%, according to a survey by the Council on Foundations, Washington.
The trustees of the foundation undertook the restructuring to increase its grant-making abilities and to reduce risk, said Mr. Pitts.
"We are not running away from bad performance, nor are we chasing spectacular performance," he said. "It's a matter of balancing the risk over a few more managers.
"The view going forward was we needed to spread the money across diversified assets with an expected return that was 6% over inflation to feed the fee structure and the spending rule," said Mr. Pitts.