Overview

The Jack & Greta Stalsby Foundation is meant to exist in perpetuity, creating a lasting legacy for its founders, Jack & Greta Stalsby. This ongoing mission is much like the one facing private colleges and universities. As such, the investment philosophy derived for the Foundation is based on the practices of the largest and most sophisticated pools of capital – institutional pension funds and endowments.

Investment Objectives & Guidelines

Return Target

The Foundation Endowment’s objective is to achieve long-term rates of return that will exceed the IRS mandated 5% annual distribution plus inflation. This return will come primarily from long-term capital gains, but the Endowment will also seek current income as a secondary objective in order to provide lower portfolio volatility and funds for Foundation Grants.

Risk Characteristics

In order to outpace the 5% required annual distribution plus inflation, significant market risk is required. In an effort to mitigate this risk, Foundation investments are diversified among various asset classes (U.S. equities, international equities, bonds, etc.) and issuers of securities. Equity investments are further diversified by investment style; both growth and value styles are utilized in the portfolio. Income oriented investments are also utilized in order to reduce the risk of the overall portfolio.

Given that the endowment is managed to maximize long-term total returns, its value will fluctuate and involve periods of both positive and negative investment performance. Such performance could have a material effect upon the Foundation’s ability to fund grants.

Liquidity

Cash will be required to fund the 5% annual charitable distribution plus modest annual expenses, but otherwise there are few if any liquidity needs. The majority of the Foundation endowment will be invested in equity securities, which have generally liquid markets. However, equity securities involve risk to principal value, and it is therefore not advisable to view these securities as having a high degree of liquidity. Additionally, a portion of the endowment may be allocated to illiquid alternative investments such as private equity or hedge funds. While these investments will have reduced liquidity, they do have higher expected long-term returns.

Taxes & Legal Constraints

By law, a private foundation must distribute 5% of its asset value for charitable and administrative purposes each year. The Foundation board has full fiduciary control over both investment selections and disbursement of grants.

In regards to taxation, the Foundation is a tax-exempt charitable entity. However, Internal Revenue Code section 4940 imposes an excise tax of 2% on the net investment income of all private foundations.

Asset Allocation

Guidelines

There is no more important aspect of portfolio management than the asset allocation decision. Studies have shown that the asset allocation decision determines over 90% of portfolio returns. The asset allocation is also the primary driver of the portfolio’s risk and return characteristics.

For the Stalsby Foundation, a highly diversified portfolio is extremely important. Such a portfolio should allow for consistent long-term returns, while at the same time minimizing risk. The appropriate balance between preservation of principal and investment growth can be achieved through prudent diversification. History has shown that a well developed asset allocation policy, consistently applied, is the surest way to produce satisfactory long-term returns.

Investment Policy

Listed below are the asset allocation targets for the Stalsby Foundation Endowment, as well as acceptable ranges of investments into the future. The Endowment will not be invested to violate the constraining percentages listed in the “Acceptable Range” column.

This allocation will be revisited annually to ensure that it still meets the ongoing needs of the Foundation.