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Investments Q&A with CFT’s Carolyn A. Newham, J.D.

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Investments Q&A with CFT’s Carolyn A. Newham, J.D.

Investments Q&A with Carolyn Newham, CFT's Senior Director of Donor Relations and Services

One of the topics we talk frequently about with our charitable fund holders and their professional advisors is our investment performance and investment portfolio options for our charitable funds, so we wanted to overview our recent investment performance success and how CFT manages our charitable assets.

Overall, our assets under management have grown to over $1.3 billion, and our investment portfolio returns rank in the top quartile of the Cambridge universe for the 1-year, 3-year, 5-year, and 10-year return time periods.

Investments Q&A with Carolyn Newham, CFT’s Senior Director of Donor Relations and Services

We know the team has worked really hard for these incredible results. Tell us a little bit more about how CFT makes investment decisions?

Carolyn Newham: When it comes to investment decisions, it’s really a team effort.  There are three staff on the investment team and they work closely with our investment advisors regarding our asset allocation, investment strategies, and our investment managers who manage the individual funds that we invest in.

The team is continually monitoring the performance of each investment pool, each investment manager, and looking at market trends to determine if we need to make changes to enhance the investment performance.  As we evaluate various investment options, we consider many factors such as portfolio risk, the correlation with our existing investment manager,  investment strategies, and fees. We have a target return for each of our investment portfolios.

For example, the target return for our endowment portfolio is to generate a return in excess of the spending rate, inflation, and fees without taking on an excessive amount of risk.  We want a well-diversified portfolio that will participate when the market is trending upward but, just as importantly, provide protection to the portfolio during downturns.  While decision making begins with the investment team, it ends with the investment committee which has final approval authority.

Tell us more about the role of the Investment Committee in making decisions and the collective work to help improve the diversity of our investment managers.

Carolyn Newham: One of the advantages we have here at CFT is a very strong investment committee.  Our investment committee currently consists of six individuals: four CFT Trustees and two non-trustees from the investment community.  All six members have investment experience and each member takes their committee responsibility very seriously. They review our recommendations in detail to make sure they understand the reasoning behind our recommendations. Ultimately, it is the investment committee that approves the asset allocation, target returns, hiring and firing of individual investment managers, consultants and custodians.

In terms of diversity – that word has several meanings for those in the investment field, and at CFT we are focusing on all aspects of diversity.  Historically, the word diversity has meant a variety of asset classes, investment funds, or strategies.  Over the past several years, we have expanded our definition of diversity to include the membership on our investment committee as well as our investment managers.

Of the six investment committee members, 50% are either women or people of color.  Regarding our investment managers, each time we do a manager search, we include firms that are either owned or led by women or people of color. In the past two years, 50% of the investment managers we have hired have been firms owned by people of color.  This has been and will continue to be emphasized here at CFT.

CFT successfully navigated a very difficult market in 2008 and 2009 and we believe that experience set us up well to navigate the market in 2020. The performance of CFT’s endowment and long-term growth pools continue to exceed the returns of other peer foundations. What was 2020 like for investments? What do you attribute the success to?

Carolyn Newham: If you go back two years to 2019, our investment returns in calendar year 2019 exceeded all expectations. Much changed in 2020 with COVID-19. Throughout 2020, the investment team was in constant contact with our investment managers. While our portfolios declined in value in the first quarter of 2020, in line with the broad equity markets, we did not believe the decrease was due to systemic issues as we saw in 2008. We did not make drastic changes to our asset allocation.  We did not rush to increase our cash position. We maintained our approved asset allocation; we rebalanced the portfolio in the second quarter to take advantage of opportunities and we had a slight overweight to the U.S. and emerging markets which benefited the portfolios and resulted in strong investment performance in 2020.

What does Communities Foundation of Texas strive for in investment returns? What should a fund holder think about when reviewing fund statements and considering their charitable investment allocations?

Carolyn Newham: The important thing to remember is that these portfolios have a long-term time horizon.  All the portfolios, except the income fund and the short-term fund, have exposure to the equity or fixed income markets, so there will be volatility and periods when the funds experience drawdowns, but the portfolios are well diversified and over time, 5 – 7 years, we would expect the portfolios to generate a 7% – 8.5% return.

Is there anything on the horizon for 2021 you want to highlight?

Carolyn Newham: We think 2021 will be an interesting year. We think there will be a lot of volatility, we’ve already seen this occuring. On the one hand, we believe the economy should improve as more and more people get vaccinated and begin to spend more. However, valuations on the equity side and fixed income side are high. We do not anticipate any significant changes to the portfolios in 2021.  We believe our asset allocations will remain largely as they are today, but we will continue to increase the diversity of our investment managers throughout the year.

If you ever have any questions or want to discuss our investments further, feel free to reach out to our team at giving@cftexas.org.

Carolyn A. Newham, J.D.
Carolyn A. Newham, J.D.
General Counsel and Corporate Secretary

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