Statements to stakeholders

August 11, 2011

A message from VCCF to stakeholders on market events

In the wake of recent stock market turmoil, we want to assure our donors we are watching the markets especially closely.

We will let you know how VCCF investments have fared during the market upheaval as soon as our experts can compile the results across our complex portfolio. Their findings will be posted on the VCCF website, vccf.org. Next Tuesday, following our investment committee meeting, June 30 results and preliminary figures for July will be posted on the VCCF website. We will post additional information as it becomes available.

We have weathered rough patches in the markets before. Our “since inception” record, as of March 31, is 8.9 percent per year, roughly in a range that permits not only 5 percent annual distributions after fees and the current levels of inflation but also long-term capital growth.

Our portfolio returns - both on an absolute basis and on a relative basis comparable to our policy index - continue to give us confidence that VCCF’s long-term investment strategies will provide stability for our portfolio even in this volatile time for investors, as well as capture additional value for our portfolios from these managed accounts. Core principles guiding our investment policies are restated below.

We take pride in the long-term performance of VCCF’s endowment portfolio, which is ranked one of the top 11 in the U.S. among community foundations, lending credence to our strategies and policies to be thoughtful stewards of the funds we are managing on behalf of donors and the wider community we serve.

Our investment policies are guided by the objective to generate growth - through full market cycles - of charitable capital so that it will support its charitable intent, after fees, inflation and annual distributions. Strategies to achieve this objective are the responsibility of the investment committee, under the oversight of the VCCF board of directors, and are informed by the advice and assistance of our long-term investment consultant, Canterbury Consulting.

At VCCF, we believe in transparency. Information on our portfolio returnsare not only shared with fundholders and discussed in detail at the annual open investment committee in November but are posted here.

We welcome any questions or comments. Please call Hugh Ralston, president & CEO, at 988-0196, Ext. 111, or Clare Brown, vice president and controller, at 988-0196, Ext. 129.

Our beliefs about sound investing for the long term

Our endowment investment strategies are marked by a series of core disciplines:

Investment Disciplines and Policy

• We are driven by long-term objectives and are not subject to market timing decisions. VCCF’s investment objectives are focused on long-term growth, and employ strategies likely to be different from an individual’s own portfolio and/or retirement account.
• We believe in an appropriate level of risk, driven by the need to generate returns to support grantmaking, fees and offset the erosion of capital values through inflation. That risk is determined through the portfolio’s asset allocation.
• Diversification among different asset classes reduces portfolio risks by allocating exposure in different sectors of the investment markets, from small to large cap U.S. stocks, from fixed income to alternative assets, from international large cap stocks to emerging market investments. This is a core element of our investment strategy.
• Additional diversification comes from using hedge-fund strategies and investing in alternatives, including absolute return managers, private equity investments and specialty managers. In recent years, VCCF has employed more of these strategies to reduce the risk in the overall portfolio and to enhance long-term returns.
• VCCF investment strategies since 2006 have followed a disciplined plan of increasing diversification toward long-term targets.
• Having met our most recent targets, the investment committee is reviewing our asset allocation targets this summer to evaluate whether additional changes should be made to support our long-term goals.
• VCCF donors benefit from participating in an endowment pool, which provides access to a large diversified portfolio structure and at a cost not available to many small funds.

Manager performance

• Manager performance is reviewed on a consistent timetable, both on an absolute basis, as well as on a relative basis toward an appropriate benchmark.
• We also monitor our performance relative to other community foundations across the United States.

Annual distribution to beneficiaries

• Beneficiaries naturally are concerned about the amount of annual distribution from VCCF managed endowments. VCCF policies mitigate against short-term market volatility by using a 12-quarter rolling average to calculate annual distributions, based on the values as of the last June 30 date.
• In 2009, the VCCF board adjusted its payout formula to take into account then significant declines in endowment values, reducing the annual distribution from some funds to permit a more rapid recovery of the core endowment value. This decision reflects our obligation to provide long-term growth under appropriate risk levels to support the endowment’s core value while still providing annual grants distributions as intended by our donors. This formula was recently reaffirmed by the VCCF board.
• Where donors provide explicit prohibition against using principal for distributions, VCCF honors that prohibition. We will not make a distribution from a fund with such restrictions where the value has fallen below the core principal value until that value has been recovered.