When it comes to their own charitable investments, some of the biggest fund companies in the nation do not appear to be putting their money where their mouth is.
Mutual fund complexes' charitable foundations kept large portions of their assets in cash at the end of 2001, according to tax documents.
The foundations, set up by fund companies to make corporate donations to community groups, universities, religious organizations and the like, had socked away as much as 55% of their assets in cash and invested as little as 29% of the money in their own mutual funds, the documents show. Such foundations differ from the charitable donor-advised funds that fund companies offer to investors in that they are not investment products but, rather, entities set up primarily to give a portion of a fund company's revenues to charity.
The $306 million Fidelity Foundation, the charitable entity managed by Fidelity Investments of Boston, had invested only 29% of its assets in mutual funds as of the end of 2001, the most recent year that information was available. Twenty-nine percent of the Fidelity Foundation's assets, meanwhile, were kept in cash and 42% were allocated to other investments.
Janus Foundation had kept 55% of its $2.4 million in cash and only 38% of those assets in funds. The $3.8 million Vanguard Group Foundation had 48% of its assets in cash, with the balance invested in funds. Vanguard did not respond to requests for comment by press time.
The discovery was first made by Roy Weitz, who runs a mutual fund commentary Web site called FundAlarm.com and works at the foundation of a wealthy Los Angeles family.
So, if these fund companies are encouraging investors to buy mutual fund shares, even during this protracted bear market, why are they reluctant to invest their own money in those funds?
Weitz suggested that the firms have set up their foundations, not to make money, but to give it away, and so they take a conservative approach. But he also said that a charitable foundation's investment strategy should be no different than that of a retired investor with a long life expectancy. With that in mind, he speculated that few of these companies would recommend that their clients invest as much as 55% of their assets in cash.
Short- vs. Long-Term?
Indeed, fund companies said that the purpose of their foundations is to invest for the short-term and keep their assets liquid for the purpose of giving money away. "You're not going to put it in something long-term," said Nancy Fisher, a spokeswoman for Putnam, which runs the $3.8 million Putnam Investments Foundation. And, to demonstrate that these tax forms don't tell the whole story, Fisher said that, although 100% of the Putnam foundation's assets are listed as "savings and temporary cash investments" on the balance sheet, all of those assets are invested in the Putnam Asset Allocation Fund.
Janus' foundation employs a similar, short-term strategy, which shouldn't be mistaken for the goals of a long-term investor. "I don't want investors to think, Gee, you're telling me one thing and doing another,'" said Shelley Peterson, a Janus spokeswoman. "To confuse the goals and objectives would be very misleading."
And John Bonnanzio, editor of Fidelity Insight, an independent newsletter for Fidelity investors, defended the fact that so many firms have kept a large chunk of their assets in cash, saying that with markets continuing to swoon, "thirty percent [in cash] looks a little more brilliant going into 2003."
Bonnanzio also said the investment strategy of a fund's foundation is not necessarily an indication of that company's view of the markets. Nonprofits, regardless of whether they are connected to a fund company, often have a much more conservative outlook than fund investors, he said. In volunteering at his local church, for example, he said that "we're far more careful with how we invest church assets than I would be with my own assets."
Still, there are hints that the asset allocation strategies of these foundations reflect their patron firms' outlook for the markets. Some of the foundations had a considerably smaller percentage of their assets in cash in 1999, near the height of the bull run-up. The Fidelity Foundation, for example, had 19% of its assets in cash in 1999, compared to 29% in 2001. And 17% of the Janus Foundation's assets were in cash at the close of 1999, compared to 55% in 2001, the tax documents show.
By contrast, The Vanguard Group Foundation's asset allocation has remained very much the same, bear market or no bear market. In 1999, the foundation put 43% of its assets in cash, compared to 48% at the end of 2001.
Others have simply said, in no uncertain terms, that their foundations invest according to the market outlook of their firms. A Fidelity spokesman said that the Fidelity Foundation's assets "are diversified, just as we have guided our customers to diversify." He said that 40% of Fidelity's $700 billion in assets under management are invested in fixed-income or money market products.
T. Rowe Price spokesman Brian Lewbart said that his firm's T. Rowe Price Associates Foundation, which had $25.2 million in assets as Dec. 31, 2001, has invested 53% of its assets in equity funds and the balance in fixed-income funds. Roughly 17% of the assets in those fixed-income products are short-term Treasury notes, which appear as cash on the balance sheet, he said. The foundation is very conservative in its investments, but Lewbart said that it allocates its assets in "keeping with the T. Rowe Price approach in general."
In addition, Lewbart said the T. Rowe Price foundation plans to invest more in equities in the coming year because it is optimistic about the markets.