Financial Summary

Significant volatility in global markets impacted the Cleveland Foundation's investment portfolio in 2011, especially during the second half. We were encouraged by a strong start to 2012, though we expect continuing market instability.

2011: Another Rough Ride for Investors

Investors were buffeted by market fluctuations in 2011. The foundation's total assets declined 4 percent to approximately $1.8 billion at year-end from approximately $1.9 billion at the end of 2010. The third quarter was especially challenging, with Congress deadlocked over deficit reduction, S&P downgrading the nation's credit rating, and financial instability pervading Europe. A fourth-quarter rebound mitigated our overall investment losses, which were 1.6 percent for the year.

Also factoring into the decrease in our total assets were authorized grants of $80 million as we identified and responded to community needs. Gifts received totaled $41 million, reflecting the generosity of our donors despite the ongoing challenges in the markets and the economy. We maintained our focus on cost control, as evidenced by our reduced administrative expenses.

Improved Investment Returns Marked First-Half 2012

We are happy to report that, although our other investment pools posted negative results, the Cleveland Foundation Pooled Investment Account ended the year slightly positive, up 0.2 percent. This pool, which holds approximately $280 million in assets, comprises most of our donor-advised and organizational endowment funds.

Although global markets were volatile in the first half of 2012, our investment returns were 4.3 percent. We received $27.5 million in gifts in the first half—a strong start to the year—and we ended the first half with assets of $1.82 billion. We plan to authorize 2012 grants at or above the amount we granted last year.

We Take a Long-Term View

Our endowment portfolio had annualized investment gains of 6.1 percent over the 10 years ended June 30, 2012, comparing favorably with an S&P 500 increase of 5.3 percent in the same period. Though short of our 8 percent target, our performance was notable during this generally difficult, volatile time for investors. We manage not from quarter to quarter or year to year, but to specific, long-term investment objectives: Preserve capital and achieve a real return over the majority of rolling five- and 10-year periods. A real return is any return in excess of our spending (generally, 5 percent of assets) and inflation.

Diversification and use of best-in-class investment managers are keys to meeting our long-term objectives. Going forward, the majority of our portfolio will be exposed to equity markets, but we will use hedged equity, fixed income, and absolute-return investments to minimize volatility and real assets to protect against inflation.

With the 2012 implementation of our new, integrated computer software system, we anticipate improved service to all our valued stakeholders. User-friendly portals into the system will put more timely information at your fingertips, increase your access to historic data, and simplify the process of transacting business with the foundation. We are excited about this technology upgrade and eager to receive your feedback as we continue seeking to serve you better.

Kate A. Asbeck
Senior Vice President and Chief Financial Officer