2021/22 – UVic Foundation Portfolio Philosophy, Principles and Practices

The Foundation believes endowments are forever. Ensuring the university has a stable revenue source to fund projects and research of vital importance is what drives the Foundation’s long-term investment horizon and focus on long-term returns.

As investors, the Foundation Board believes Responsible Investing that takes environmental, social and governance (ESG) factors into consideration, is an important determinant of long-term financial performance and investment returns. We are committed to updating plans to ensure important ESG risk and opportunity considerations, including climate change, are a part of investment strategies for all asset classes.

For more information, please see the following frequently asked questions.

What are the Foundation's Investment Objectives?

The endowment funds of the University of Victoria Foundation (the “Foundation”) are invested in accordance with the Foundation’s Statement of Investment Objectives and Guidelines (SIO&G). The SIO&G sets out the categories of permitted investments, diversification, asset mix and rate of return expectations. A fundamental underlying concept is that the Foundation’s endowed assets are intended to exist in perpetuity.

As a result, the Foundation has a long-term investment horizon and focuses on long term returns. The investment objectives of the Foundation reflect this and are focused on:

  •  Preservation of capital in real terms;
  •  Generation of sufficient annual cash flow to meet annual distribution requirements; and
  •  Growth of the retained assets to meet rising costs over the long term.

 The SIO&G is reviewed annually by the Board of Directors of the Foundation.

Is the Foundation achieving its intended investment goals?

The Foundation’s long-term investment goal is to achieve a minimum annualized rate of return of 4.5% in excess of the Canadian Consumer Price Index.  The Main Investment Pool has outperformed its goal over the last 10 years.

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What is the difference between the Foundation's Main Investment Pool and the Fossil Fuel Free Investment Pool?

The Foundation’s Main Investment Pool is constructed with an asset mix biased to equity investments, representing a fully diversified mix of asset classes optimized based on forecasts of risk and return, which may include equities, fixed income, real estate, infrastructure assets, private equity and hedge funds.

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The Fossil Fuel Free Investment Pool (“FFFIP”) is an alternative investment option for donors who prefer to not have their endowed donations invested in companies directly involved in the extraction, processing and transportation of coal, oil or natural gas “fossil fuels”. The FFFIP also excludes companies included in the “Carbon Underground 200” list. The FFFIP was created in 2016 in direct response to student and faculty calls for action to address climate change and provide donors a fossil fuel free investment option. The FFFIP was seeded by the university with $25K from working capital. With help from student feedback over the past year to increase awareness of donor investment options, the FFFIP has grown assets under management to over $112K in 2021.

In November 2020, increased contributions allowed the Foundation to update the FFFIP from an equity only pool to a more diversified asset mix that includes a 65% allocation to equities and a 35% allocation to fixed income. This change was made to better diversify the pool and reduce its volatility. While the FFFIP is still less diversified than the Main Investment Pool, both pools are expected to offer comparable long-term performance meeting the Foundation’s investment goals.

The FFFIP returned 0.2% since inception this year. At this time next year the performance will reflect the recent manager and asset allocation changes.

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What are the main determinants of the Foundation’s investment portfolio risk and return?

Asset allocation is the main determinant of long-term portfolio risk and return. Ultimately the Foundation’s rate of return and volatility is driven by the selected asset classes and their interaction with one another. Diversification across various factors such as asset classes, investment styles, investment time horizons, geography, and economic outcomes improve portfolio risk and return characteristics.

In 2020 the Foundation updated its asset allocation strategy based on a comprehensive asset liability study.  An objective of updating the asset allocation strategy included ensuring that material risks and opportunities are appropriately addressed across the portfolio.

How do the University of Victoria and the Foundation compare in their approach to investing?

Each organization serves a different purpose in terms of supporting the university’s financial needs. As a separate legal entity from the university with different fiduciary responsibilities, investment horizons and purpose, the Foundation’s investment policy has important distinctions from those of the university. There will always be differences in the investment strategy and tactical execution between the university’s investments that fund working capital and the Foundation’s investments that fund endowments. 

To fund endowments, the Foundation’s long term strategic approach is based on identifying an asset mix that will both preserve and grow capital to maintain the purchasing power of the fund against inflation while generating sufficient annual growth to make annual distributions to the university. The asset mix will be weighted towards growth assets such as public equities, infrastructure and real estate while maintaining a portion in fixed income for portfolio protection. The Foundation’s tactical approach is to make minor weighting changes to the long-term asset mix according to market conditions and outlook.

To fund working capital requirements, the university’s asset mix has the primary goals to preserve capital, provide liquidity and maintain purchasing power. Short term investments are needed to fund daily operational needs and arise from:

  •  Operating and research funding received in advance;
  •  Unspent annual budgets that are carried forward;
  •  Insurance reserves; and
  •  Other funds set aside for future purposes such as the replacement of equipment major capital projects and other significant initiatives.

The University of Victoria and the Foundation are aligned in recognizing climate change as a key global issue of our time and in adopting a Responsible Investing Policy. The two organizations are aligned in using the following tools to mitigate climate change:

  • carbon footprinting – progress on achieving targets will be reported annually with review of the target with periodic reviews;
  • collaborations to enhance ESG standards and disclosure requirements by joining the University Network for Investor Engagement (UNIE) and supporting the Task Force For Climate-Related Financial Disclosures (TCFD);
  • continued selection of investment managers committed to climate change who actively engage with companies to drive down emissions and increase disclosure; and
  • increase impact investing – continued financing of sustainable projects like the new student housing and dining project which meets (LEED) V4 and passive house standards – the most rigorous global building standards for sustainability and energy efficiency.

What is Responsible Investing?

Responsible investing incorporates environmental, social and governance (ESG) factors into investment decision making, recognizing that these factors can be important determinants of long-term returns.


Source: unpri.org

  • Governance factors are important as company performance can be significantly influenced by issues  such as the composition of the Board of Directors, executive compensation, voting rights of shareholders.
  • Social factors are important to company performance as constructive labour management relations, understanding customer concerns regarding corporate behaviour in other jurisdictions, support of local communities for a company’s operations, among many other factors, can have a significant impact upon future profitability and returns.
  • Environment impacts are important as companies that negatively impact the environment are both increasingly facing regulatory and legal action, and also demands from customers to improve their environmental impact, all of which are likely to have significant long-term economic consequences.

For more information on Responsible Investment please visit here.

What are the Foundation’s beliefs about Responsible Investing?

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The Foundation believes taking ESG factors into consideration is expected to have a positive effect on long-term financial performance and risk-adjusted investment returns.

The Foundation began actively integrating Responsible Investing and ESG into its investment decision making process in 2012. The Foundation regularly revisits its investment strategy to reflect these ESG principles. In 2021, the Foundation released a new Responsible Investment Policy to consider the opportunity and risk that climate change presents and focuses on decarbonisation across all investments and sectors.

Key elements of the policy include:

  • carbon footprinting – progress on achieving targets will be reported annually with review of the target at least once every five years;
  • ongoing engagement – continued participation in investor coalitions and collaborations to enhance ESG standards and disclosure requirements by joining the University Network for Investor Engagement (UNIE) and supporting the Task Force For Climate-Related Financial Disclosures (TCFD);
  • continued selection of investment managers committed to climate change who actively, often through proxy voting, engage with companies to drive down emissions and increase disclosure; and
  • increase impact investing – continued financing of sustainable projects like the new student housing and dining project which meets (LEED) V4 and passive house standards – the most rigorous global building standards for sustainability and energy efficiency.

Please click here to see the full Responsible Investment Policy.

What does it mean to be a signatory to the Principles for Responsible Investment (PRI)?

The United Nations-supported PRI Initiative is the leading global network for investors to publicly demonstrate their commitment to responsible investment, to collaborate and learn with their peers about the financial and investment implications of ESG issues, and to incorporate these factors into their investment decision-making and ownership practices. Responsible Investment is a process tailored to fit each organization's investment strategy, purpose, approach and resources. 

The Foundation views the Principles as a framework for Responsible Investing and, where consistent with our fiduciary responsibilities, we commit to the following six Principles: 

  • Incorporate ESG issues into our decision-making processes;
  • Encourage investment managers and portfolio companies to be active owners and to incorporate ESG issues into investment/ownership policies and practices;
  • Encourage investment managers to seek appropriate disclosure on ESG issues from the entities in which the Foundation invests;
  • Promote acceptance and implementation of the Principles within the investment industry;
  • Work together to enhance our effectiveness in implementing the Principles; and
  • Report on our activities and progress towards implementing the Principles.

All of the Foundation’s external investment managers are PRI signatories.

How does the Foundation engage in proxy voting for its investments?

Proxy voting is another essential tool in our commitment to responsible investing. The Foundation has delegated voting rights to be exercised by its investment managers. Equity investment managers are expected to vote all proxies in the best interests of the Foundation. The proxy voting activity of investment managers is consistently reviewed to both confirm proxy voting is occurring and that the Foundation’s interests are accurately represented. 

Investment managers are required to report regularly on their proxy voting activity. The most common types of proxy votes are: 

  • Board Opposition;
  • Say on Pay Opposition; and
  • Shareholder Proposal Support.

For more information on active engagement please visit here.

What is Impact Investing? How is the Foundation approaching Impact Investing?

The Global Impact Investing Network (GIIN) defines impact investments as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

An example of impact investing at the local level was the 2019 decision by the UVic Foundation to invest a portion of its capital into the new University of Victoria student housing and dining complex. This project will provide much-needed housing and a new dining facility for 621 students who are currently living off-campus.  The Foundation’s investment allowed the project to proceed for UVic with an attractive financial return for the Foundation, including measurable positive social and environmental impacts. The design and construction of the new buildings will meet the most rigorous global building standards for sustainability and energy efficiency.

What are the investment risks associated with climate change?

Climate change is recognized as a key global issue of our time leading to profound social, economic and environmental challenges in Canada and around the world. Therefore, the carbon emissions that cause climate change are a key consideration when making investments. The Task Force on Climate-related Financial Disclosures (TCFD) framework is the leading standard for assessing investment risks and opportunities associated with climate change. Climate change investment risks are both transitional and physical. They are explained in the TCFD framework as outlined below and more information on the TCFD can be found at https://www.fsb-tcfd.org/

Transitional Risk - Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations. 

Physical Risk - Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organizations’ premises, operations, supply chain, transport needs, and employee safety.

What action is the Foundation taking to mitigate climate change risks?

In 2020, the Foundation updated its responsible investment belief to:

  • recognize climate change as a key issue of our time; and
  • commit to collective engagement on climate issues through the University Network for Investor Engagement (UNIE).

The Foundation recognizes that Responsible Investing, including climate change initiatives and carbon emission disclosures, is a rapidly evolving area. In 2021, the Foundation updated its Responsible Investment Policy to recognize the vital importance to reach net zero GHG’s emissions goals as soon as possible, and by 2050 at the latest, inline with global efforts to limit warming to 1.5°C.

The Foundation recognizes that Responsible Investing, including climate change initiatives and carbon emission disclosures, is a rapidly evolving area. In the new Responsible Investment Policy, the Foundation committed to give specific attention to climate change in investment manager selection and monitoring, including:

  • engaging with investment managers on their climate strategy and portfolio carbon emissions;
  • encouraging investment managers to integrate material climate-related risks and opportunities to investment analysis and requesting due diligence from investment managers to show their alignment with a 1.5°C or 2°C climate pathway;
  • encouraging investment managers to undertake active engagement with companies to foster emissions reduction performance and disclosure, including through proxy voting and engagement; and
  • encouraging investment managers to publicly support the net zero emissions goals and the TCFD recommendations, and to publish TCFD-aligned climate reporting.

What is the Foundation’s view of divestment of energy holdings as an investment strategy?

A fundamental aspect of ESG integration and the movement behind the PRI is engagement rather than divestment. ESG integration enables the investor to engage with its portfolio companies to encourage change and evolution in business activities and practices. By doing this investors can be a powerful force for positive change in many companies and sectors. 

The Foundation believes divestment is an intentional outcome of an overall Responsible Investment strategy that includes active stewardship (i.e., engagement, proxy voting and impact investment). The Foundation’s ultimate goal is to support companies with strong Responsible Investment practices and with attractive long-term growth potential who are on the path to net-zero carbon emissions, while avoiding industries and companies unwilling or unable to evolve.

What is the Foundation’s current holdings in energy company equities?

The Foundation’s holdings in energy stocks has steadily decreased over the past five years, driven by adjustments to portfolio asset mix as well as changes to investment managers. Currently, The University of Victoria Foundation no longer holds any equities involved in the extraction and processing of coal, oil or natural gas.

How are the Foundation's infrastructure investments mitigating climate change risk?

The Foundation believes infrastructure investments provide an important opportunity to mitigate climate change risks while providing strong risk-adjusted performance. The Foundation’s infrastructure investments do not include the extraction and processing of coal, oil or natural gas, and the Foundation’s infrastructure managers have committed to reach net zero greenhouse gas emissions by 2050. Recently, the Foundation expanded its impact portfolio by investing in the Brookfield Global Transition Fund which has a strategy to invest in opportunities that advance and facilitate the global transition to a net-zero carbon economy.