Overview
The financial results for the Foundation for 2023-24 reflect the continued generosity of our donors with $7.3 million in donations, $12.6 million expended on grants and community leadership, more than $51 million in capital invested for impact, and five- and ten-year investment returns that continue to exceed our long-term investment policy targets.
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. HCF has exceeded the new five percent requirement consistently in prior years, by more than $26 million over the last five years. In addition, the Foundation has continued to mobilize its capital to contribute to positive social and environmental outcomes with 22 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.
Public markets experienced volatility throughout the year with significant monetary policy-tightening by central banks to try to tame inflation. Despite market volatility and ongoing geopolitical instability, the market benchmark return was 19.8 percent. HCF’s public portfolio was 17.7 percent for the year ended March 31, 2024, while HCF’s total returns including our impact investments were 12.7 percent for the year.
In addition:
In keeping with our commitment to financial accountability and transparency, full audited financial statements are available at www.hamiltoncommunityfoundation.ca or by mail. If you have any questions regarding our financial highlights, please contact Yulena Wan, at y.wan@hamiltoncommunityfoundation.ca or by phone at 905.523.5600 x 228. You may also access information from the T3010 Registered Charity Information Return online here.
Donations to the Foundation are from individuals, corporations, and other charities. Donors may contribute to named endowment or flowthrough funds, to the Board-directed Community Fund, or to HCF’s community leadership projects. HCF received almost $7.3 million in donations in 2023-24. Annual donations are influenced by the realization of donations in wills and significant one-time donations such as property and private equity that have been received in recent years. Annual donations have ranged from $7.3 to $35.1 million over the last five years. In the year 2020, HCF received a single, one-time donation of $25 million.
The number of donations is 1,333 a small increase from 1,305 last year. The number of donations fluctuates based on “in memoriam” donations and the number and nature of events organized by donors to raise money for their funds.
Grants are made annually from both endowed and flowthrough funds. Flowthrough fund balances are granted in a shorter time and thus can materially influence the amount HCF grants annually. HCF distributed $12.6 million in grants and community leadership project spending in 2023-24. Grants and community leadership project spending over the past five years has ranged from $11.5 million to $13.6 million. Granting from flowthrough funds and expenditures on community leadership projects has ranged from seven to thirty-seven percent of total granting in the past five years. Flowthrough granting in recent years has largely consisted of federal government funding related to social finance investment programs.
This year’s 959 grants is a record high and is 4.5 percent higher than the five-year average.
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. Two committees of the Board oversee investments to ensure compliance with the policy:
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.
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.
Two long-term portfolios are invested in the public markets with two professional investment firms. Chart 2 compares those portfolios against benchmarks as follows:
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. HCF’s investment policy target is a long-term investment return in the 6.5 to 7.5 percent range.
The public markets experienced a strong year ending at a 19.8 percent benchmark and HCF’s portfolios posting 17.7 percent returns. 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 investment policy range of 6.5 to 7.5 percent.
As long-term investors, HCF’s investment and spending policies recognize that volatility is a reality of public market 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. As noted in the overview, HCF’s spending policy for granting from endowed funds is set at four percent for 2024-25.
The 8.2 percent ten-year annualized return continues to be higher than the targeted investment policy range.
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 22 percent of our total 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.
Local investments since inception total $22.1 million with $14.3 million outstanding at year-end and an additional $1.6 million committed. Chart 3 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.
Nationally/Globally
These investments include private equity, private debt, and real estate.
Chart 4 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.
Expenses are allocated to each of the Foundation’s operating area: grants administration, community and philanthropic leadership, community relations and knowledge sharing, philanthropic services, and administration and governance. Community and philanthropic leadership includes convening around the city’s critical issues, and fostering the growth of strategies such as in philanthropy and impact investing by sharing staff time and knowledge to support others.
Operating expenses for the fiscal year ended March 31, 2024, totaled $3.1 million, up 9.7 percent from the previous year, largely reflecting increased activity and inflationary pressures. Staffing costs related to the Foundation’s 23 employees represent 66 percent of HCF’s operating costs. Charts 5 and 6 illustrate these costs by expense type and operating area.
The Foundation’s annual donor development expenses are not necessarily attributable to the donations received in that year. The nature of donations to the Foundation can result in costs preceding the receipt of the donation by several years (for example, donations through wills). As a result, consistent with the community foundation sector, operating costs are evaluated by a ratio of total operating expenses to average total assets. Ratios fall within a range depending on the size and stage of the Foundation’s development.
The ratio of 1.15 percent, as illustrated in Chart 7, represents a significant drop from the pre-pandemic level in 2020 of 1.26 percent. The drop in 2021 resulted from the impact of large investment returns that increased the Foundation’s average assets, combined with cost savings that resulted from the pandemic’s impact. We have seen this ratio returning to the ranges seen in prior years which management assesses to be within an acceptable range for a foundation of HCF’s size, stage, and level of community leadership, compared against benchmarks established in the community foundation sector. We continually monitor both the actual results and the benchmarks.
In December 2023, HCF experienced a cybersecurity incident that involved a sophisticated fraud. There has been no effect on HCF’s ability to grant. The loss, which was covered by our reserves, has now been repaid fully through investment returns. HCF is continuously working with experts to adapt controls and processes to safeguard against increasingly sophisticated cybercrime techniques. Investigations into the incident are ongoing and involve local and national efforts to determine recoverable amounts.
Hamilton Community Foundation’s total assets of $279.9 million on March 31, 2024, include balances of HCF funds and $2.6 million in funds held on behalf of others.
Donations to the Foundation are invested for the long term in public markets and in alternative investments. Investment income is then allocated annually to support granting, community leadership and operations. The summary and charts presented here provide both a financial snapshot and a history of recent activity that underlies the grants and community leadership activities represented in this annual report, made possible by remarkable donors.
Donations to the Foundation are from individuals, corporations and other charities. Donors may contribute to named endowment or flowthrough funds, to the Board-directed Community Fund, or to HCF’s community leadership projects.
The $35.1 million in donations this year is the second highest total in HCF’s history. Annual donations are influenced by the timing of the realization of donations in wills and significant one-time donations like the $27.7 million in donations of property and private equity. As illustrated in Chart 1, annual donations have ranged between $3.2 and $35.1 million over the past eight years. The five-year rolling average of donations ranges from $5.0 million to $13.3 million over the past eight years.
The five-year rolling average number of donations is 1,787 with 2019-20 at 1,853. The number of donations fluctuates based on “in memoriam” donations and the number and nature of events sponsored by donors to raise money for their funds.
Chart 1
Grants are made annually from both endowed and flowthrough funds. Because flowthrough fund balances are distributed in a shorter time period, granting from these funds can materially influence HCF’s total annual amount granted.
As illustrated in Chart 2, grants and community leadership project spending over the past eight years has ranged from $4.7 million to this year’s historic high of $11.5 million. Granting from endowment funds was reduced in 2013 as a result of the decline in investment returns in 2012 which a) lowered the asset base used for the granting calculation (currently four percent of the fund balances), and b) resulted in less income available to grant. Flowthrough granting and expenditures on community leadership projects has ranged from 22 to 56 percent of total granting in any given year and is dependent on the timing and nature of flowthrough and project activity. At 893, the number of grants for this year is 37 percent higher than the eight-year average.
Chart 2
Investments traded in active markets are reported at fair market value. Investments not actively traded are recorded at their cost less any impairment of their value.
To support our strategy of aligning our assets with our mission and to provide a more diverse and robust portfolio, HCF has committed to investing in alternative asset classes including loans to charities and not-for-profits, private debt, real estate, infrastructure and private equity. These alternatives are consistent with the Foundation’s long-term investment horizon and liquidity requirements. Since these investments are not actively traded, they are valued at cost in the investments. These alternatives total $25.8 million.
HCF invests according to policy guidelines established by the Board of Directors. Two committees of the Board oversee investments to ensure compliance with the policy:
As an endowment builder, HCF’s policy focuses on long-term investing and is supported by reserve accounts that are currently at their policy maximum.
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 this range. Chart 3 reflects the current and target asset mix. Note: $25 million of private equity relates to a fund established by a donor and is not part of the asset mix or the consolidated portfolio results.
Chart 3
Two long-term portfolios are invested in the public markets with Jarislowsky Fraser, and Connor, Clark & Lunn. Chart 4 compares those portfolios against benchmarks as follows:
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 compared to the average market performance. HCF’s investment policy target is a long-term investment return in the 6.5 to 7.5 percent range.
Chart 4
The effect of the global pandemic has materially affected investment returns, resulting in a -8.4 percent public market return for the year. The seven-year annualized return at 6.8 percent is within the targeted investment policy range and is 1.2 percent higher than the 5.6 percent benchmark. As noted in the financial highlights, the current 10-year annualized return of 7.0 percent is in the target range and is higher than the benchmark by 1.2 percent.
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. In addition, these investments provide a pool uncorrelated to the public markets which, in turn, buffers the portfolio from the volatility currently experienced.
More than 15 percent of our long-term assets are in impact investments. Chart 5 illustrates HCF’s impact investing progress over the past five years, with $25 million currently placed or outstanding and another $15 million committed. This brings the total commitment to $40 million, up from $34 million last year. Impact investments cover areas including affordable housing, arts, environment and sustainable development.
Chart 5
Local loans since inception total $9.7 million with $7.1 million outstanding at year end. Chart 6 shows the impact areas our loans have supported. Since the loan program’s 2012 inception, $2.6 million in loan principal has been repaid and recycled as new loans. In addition, the interest from these loans supports HCF granting.
Chart 6
IRP is a Government of Canada program being delivered nationally by partners including Community Foundations of Canada. As the first phase in the government’s long-term investment in social finance, the IRP’s goal is to make social-purpose organizations “investment ready” so they can make a difference in new and innovative ways through their participation in the social finance market. HCF has partnered with community foundations in London and Niagara, and the McMaster Innovation Park to manage the program regionally on behalf of Community Foundations of Canada. The first request for proposals for funding in January created enormous interest nationally and garnered 65 submissions to our regional partnership. Approved funding is expected to be released in June 2020. As an additional benefit, the IRP brought a growing number of potential opportunities for local loans to HCF’s attention.
These investments include private equity, private debt and real estate investments. Many of these investments are long term in nature, are maintained at cost and do not have a regular income stream. As these investments are maintained at cost, their results include interest income and realized gains, but not unrealized gains. Results for these investments are closely monitored and are reported when realized. Chart 7 identifies the investment areas, with $18.0 million placed and a total commitment of $33 million across 21 investments.
Chart 7
Operating expenses for the fiscal year ended March 31, 2020 total $2.5 million and were 2.5 percent higher than last year. Staffing costs related to the Foundation’s 22 employees represent 70 percent of HCF operating costs.
In addition to breaking out cost by type, operating costs are allocated to each of the Foundation’s operating areas: grants administration, community and philanthropic leadership, community relations and knowledge dissemination, development activities, and administration and governance. Examples of community and philanthropic leadership include convening around the city’s critical issues and fostering the growth of philanthropy by sharing staff time and knowledge to support other charities. Charts 8 and 9 illustrate these costs by operating area and by expense type.
Charts 8 and 9
The Foundation’s annual development expenses are not necessarily attributable to the donations received in that year. The nature of donations to the Foundation can result in costs preceding the receipt of the donation by several years (for example, donations through wills). As a result, consistent with the community foundation sector, operating costs are evaluated by a ratio of total operating expenses to average total assets. Ratios fall within a range depending on the size and stage of the community foundation’s development.
Management considers the ratio of 1.26 percent (1.25 percent in 2019), as illustrated in Chart 10, to be within an acceptable range for a foundation of HCF’s size, stage and level of community leadership, compared against benchmarks established in the community foundation sector. We continue to monitor both the actual results and the benchmarks on an ongoing basis.
Chart 10
Hamilton Community Foundation’s total assets of $201 million at March 31, 2020 include balances of HCF funds and funds held on behalf of others at $1.7 million.
Hamilton Community Foundation’s fund balances, illustrated in Chart 11, represent accumulated donations plus the net investment earnings on these donations, minus granting and operating costs. Funds include both endowed and flowthrough funds. Endowed funds are held permanently and grant from investment earnings. Flowthrough funds are fully distributed as grants over a pre-determined term.
Chart 11
The fund balances have grown 55 percent to $198 million at the year ended March 31, 2020 from $128 million in 2013. Donations of $35.1 million included $4.4 million in flowthrough donations that were largely distributed as grants in the year and, as a result, do not remain in the fund balances at year end. This results in a modest total funds balance growth of 4.8 per cent for the year. The number of funds has grown 19 percent to 377 from 318 in 2013.
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