The Ventura County Community Foundation in Camarillo, California, has announced that it will change the formula for calculating distributions from its endowed funds to local nonprofits during the 2010 fiscal year.
Although VCCF's investment portfolio performed strongly in the most recent quarter, the foundation's endowment pool as of June 30 was down about 15 percent year-over-year, after including annual distributions. The decline comes after modest portfolio losses in the previous fiscal year, reducing some funds to 80 percent of their original principal value. "Continuing the 5 percent payout rate for funds that have declined 20 percent runs the risk of permanent loss, since no reasonable investment strategy will produce the type of returns to right the balance to more historic levels," said VCCF president and CEO Hugh Ralston.
For 60 percent of the three hundred funds in the VCCF endowment pool, the decision may result in a payout reduction of 1 percent, to 4 percent; of those, 30 percent will be able maintain a 5 percent payout rate because they currently exceed 100 percent of their original principal value. The change will have the greatest impact on about 40 percent of the funds in the pool, many of which were opened shortly before the market reversals of October 2008. A small handful of those funds — less than ten — will make no distributions next year, due to rules set by the donors that prohibit the invasion of principal.
The foundation's discretionary endowment funds also will be subject to the 4 percent rate. Despite the change, VCCF expects to distribute more than $2 million from its endowment funds next year to local organizations.
"Our annual payout is linked to the expectations of growth for the portfolio," said VCCF investment committee chair Robert Katch. "Our policy has always been to generate enough growth in the endowment over market cycles to provide annual distributions after inflation and fees and still permit the portfolio to grow its core value. With the current investment horizon, we don't think it wise for 5 percent to be distributed in the coming year. As for the year following, we are watching carefully and will revisit the policy next summer."