Portfolio philosophy, principles & 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.

UVic 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.

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.

The long-term investment goal of the fund is to achieve a minimum annualized rate of return of 4.5% in excess of the Canadian Consumer Price Index. To achieve this goal, the Fund has adopted an asset mix that has a bias to equity investments and in the last five years has been funding allocations to real estate and infrastructure. Rising inflation and volatility in the equity markets in the past year led to the Fund’s underperformance in its investment return goals over the 1-year to 5-year period. On a 10-year period the Foundation has outperformed its investment goal.

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.

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 $1.1 million in 2022.

In 2020, the Foundation changed the FFFIP’s manager and rebalanced the equity only pool with an asset mix consisting of a 65% allocation to equities and a 35% allocation to fixed income, to better diversify the pool and reduce its volatility. While the FFFIP is still less diversified than the Main Investment Pool and may exhibit higher volatility and risk, both pools are expected to offer comparable long-term performance meeting the Foundation’s investment goals.

The FFFIP returned 2.2% and underperformed the benchmark (2.7%) by 0.5%. The material difference between fund return and investment objective of CPI + 4.5% is driven by increased inflation and is being watched closely

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.

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

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.

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.