Giving

Fund status notes for 2024

Fund balance

Fund balance represents accumulated donations plus investment earnings on these donations. Investment earnings are allocated to granting, operating cost recovery and to growing the accumulated donations to account for inflation. For a more detailed explanation of the fund balance, refer to the details below.

Granting: Our spending policy

A fund does not distribute its total net income each year. Instead, a spending amount is calculated for each fund in accordance with the Foundation’s spending policy. A Foundation-wide spending rate is determined annually based on long-term investment return expectations, reserve requirements for years where returns are below average, and Canada Revenue Agency’s disbursement requirement.

Federal government legislation has increased the “disbursement quota” (the minimum amount that charities are required to spend on granting and charitable activities) to 5.0 percent from 3.5 percent of invested assets, beginning this fiscal year. This change represents a 43 percent increase in required expenditures. HCF has exceeded the new 5 percent requirement for many years. Specifically, in the five preceding years, HCF exceeded the disbursement quota by more than $26 million. In addition, the Foundation has continued to mobilize its capital to contribute to positive social and environmental outcomes with 14 percent in impact investments locally, nationally, and globally. HCF’s endowment spending policy will remain at four percent for 2024-25 which, when added to our flowthrough granting and charitable activities, will meet the disbursement quota as in previous years.

To account for investment market volatility, and accordance with best practices for endowment management, the spending amount is calculated using the spending rate applied to the fund value averaged over a period of time, rather than at a single point in time.

Investments

HCF is endowment-based with a policy focus on long-term investing. It is supported by a reserve account that is currently at its policy maximum. HCF invests according to policy guidelines established by the Board of Directors and supported by two committees of the Board. The Finance & Investment Committee oversees the responsible investing strategy (public markets) which are managed by two professional investment firms. The Impact Investment Committee oversees the impact investing strategy, with due diligence and other support from professional consultants. The investment policy sets out a total portfolio target asset mix, as well as a range around these targets. The public market investment managers have mandates within this targeted asset mix and use their discretion to invest the portfolios within these ranges. Total investment returns for the year were 12.7 percent, which includes the responsible investment portfolio and impact investment portfolio. 

As long-term investors, HCF’s investment and spending policies recognize that volatility is a reality investing. Our spending policy determines the amount available to grant in any given year, and enables HCF to grant at a consistent level, with excess income in higher-return years used to support income shortfalls in lower-return years. 

Responsible investments

HCF is committed to creating a more transparent and equitable public market through its responsible investing strategy. Paying attention to the environmental, social, and governance (ESG) aspects of the Foundation’s holdings is an important tool in aligning our assets with our mission. This strategy has evolved from learning the ESG landscape and audits that hold our managers accountable, to a more proactive approach characterized by shareholder engagement on issues that are important to our organization.

The public markets experienced a strong year ending at a 19.8 percent benchmark and HCF’s portfolios posting 17.7 percent return. Benchmarks reflect the performance of each market index based on HCF’s specific target asset mix. Comparing actual results to the benchmark measures the value added by investment managers against the average market performance. Despite market volatility, HCF finished the year with strong public market results. The five- and ten-year annualized returns continue to be higher than HCF’s targeted long-term investment return range of 6.5 to 7.5 percent.

The two long-term portfolios are invested in the public markets with two professional investment firms. Chart 1 compares those portfolios against benchmarks as follows:

Chart 1

Impact investments

Impact investments enable donations to endowed funds to drive positive change beyond granting because they represent investments of capital that deliver financial returns coupled with positive social and/or environmental outcomes. These investments also provide a pool uncorrelated to public market volatility and cover areas including affordable housing, arts, environment and sustainable development. They also support HCF’s response to the Truth and Reconciliation Commission’s 94 Calls to Action. These instruments include loans, community bonds, private debt, real estate investments and private equity. They represent local, national and global investments.

Approximately 17 percent of our total term assets are in impact investments. HCF’s impact investing has progressed over the past five years with $40.4 million currently placed and another $12.5 million committed which brings HCF’s total commitment to $52.9 million. We are encouraged by both the investments’ positive social and environmental impact. The impact investment portfolio saw a 13.3 percent loss in private equity, which we see largely as expected and temporary, to be recovered as funds mature, while the loan portfolio performed strongly with a return of 5.2 percent. 

Locally

Local investments since inception total $22.1 million with $14.3 million outstanding at year-end. Chart 2 shows the impact areas our investments have supported. Since inception in 2012, $7.8 million in investments have been repaid and recycled as new investments in our community. Affordable housing continues to be a primary focus of our local investing with 61 percent of our investments since inception supporting housing providers to build and preserve affordable home ownership opportunities, affordable rental housing and supportive housing options.

Chart 2

Nationally/globally

These investments include private equity, private debt, and real estate.

Chart 3 identifies the national and global impact investments by area of focus, with $25.7 million placed and a total commitment of $37.2 million across 24 investments.

Chart 3

Total investment returns

Fund balances

Fund balances include:

  1. Capital
    Accumulated donations plus inflation adjustments.

  2. Inflation adjustment
    Protects the value of distributions over time by adding to the fund’s capital. The Board of Directors annually determines if an inflation adjustment will be made and, if so, the size. This is based on current year returns and whether the last several years of returns have resulted in accumulated investment income greater than the amount required for annual distribution and fund administration costs. Based on the current year’s return, a 3.0% inflation adjustment was made for 2023-24.

  3. Undistributed income
    Accumulated investment earnings less:
    • Administration fee cost recovery: Each fund is charged an administration fee to recover the investment counsel and custodial fees, administration, financial management and grantmaking costs of the fund. This is calculated in accordance with the fund agreement.
    • Available to grant: A fund does not distribute its total net income each year. Instead, a spending amount is calculated for each fund in accordance with the Foundation’s spending policy. A Foundation-wide spending rate is determined annually based on long-term investment return expectations, reserve requirements for years of below average return, and Canada Revenue Agency’s disbursement requirements. The spending rate for 2024-25 is set at 4%. The spending amount is calculated using the set rate, and the fund value averaged over a period of time, in accordance with best practices for endowment management.

Depending on the nature of the nature of the agreement, when current investment returns are not adequate to meet the full spending amount, the funds may grant from:

Any amount not spent by the fund in a year is carried forward and available to be used for granting by the fund in a subsequent year.