Investment Briefing June 7, 2018 Colonial Consulting LLC. Jim - - PowerPoint PPT Presentation

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Investment Briefing June 7, 2018 Colonial Consulting LLC. Jim - - PowerPoint PPT Presentation

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Investment Briefing June 7, 2018 Colonial Consulting LLC. Jim Russo, Partner Colonial Consulting Firm Overview Founded in 1980 140 full service clients; $35.4 billion under advisement Overview Over 90% of client base consists of

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Investment Briefing June 7, 2018

Colonial Consulting LLC. Jim Russo, Partner

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Colonial Consulting Firm Overview

  • Founded in 1980
  • 140 full service clients; $35.4 billion under advisement
  • Over 90% of client base consists of not-for-profit organizations
  • 59 full-time staff members
  • 100% internally owned and headquartered in New York City

Overview Organizational Structure

Employee Owned Client Service Operations

Performance Reporting & Portfolio Transitions 21 Professionals Technology & Data Management 11 Professionals Finance & Office Management 5 Professionals

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No Outside Investors 13 Equity Partners

Consulting & Research 22 Professionals

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Why Colonial?

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CONFLICT FREE

  • We place client interests

above our own

  • Unbiased advice – no internal

strategies or financial arrangements with managers

FOCUS

  • Long history of serving U.S. not-

for-profits

  • Employee owned with only one

line of business

PERFORMANCE

  • Assume accountability for

recommendations and results

  • Goal is to achieve exceptional

investment outcomes across market cycles

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The Community Foundation’s Approach

  • Establish a strategic asset allocation that is expected to achieve the Foundation’s long

term risk/return objectives (preserve Foundation’s purchasing power in perpetuity)

  • No attempt made to market time or change strategy based on near term outlook – does

not preclude opportunistic allocations whose outcome is not driven by timing

  • Diversify portfolio by asset class and strategy. Increases the likelihood of achieving

return objectives under different scenarios

  • Capitalize on the Foundation’s scale to invest opportunistically and access top

managers across a diversified asset mix that follow Catholic principles as outlined in the USCCB guidelines

  • Provide donors with investment pool options that meet giving horizon and investment
  • bjectives

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First Quarter 2018 Market Environment

Market Index Q1 2018 Return

Non-US Emerging Equity – MSCI EM +1.4% US Small Cap Equity – Russell 2000

  • 0.1%

US Large Cap Equity – S&P 500

  • 0.8%

Non-US Developed Equity – MSCI EAFE

  • 1.5%

Non-US Fixed – Citigroup Non-US WGBI Unhedged +2.5% CSFB Leveraged Loan Index +1.6% US Below Investment Grade Fixed – Merrill HY

  • 0.9%

US Investment Grade Fixed – Barclays Aggregate

  • 1.5%

Hedge Funds – HFRI Fund of Funds +0.6% Bloomberg Commodity Index

  • 0.4%

Market Environment

 Emerging markets performed well  Credit spreads remained tight  Growth equity continues to dominate  US Dollar fell  Bonds and interest rate sensitive stocks fell  Volatility increased

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Investment Performance

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What Worked in Q1 2018?  Active managers in equity and fixed  Low core bond exposure  Non-US equity exposure What Didn’t Work?  Hedge fund managers  Value tilt  Commodities exposure

Returns are as of March 31, 2018 and are net of investment management fees.

Q1 1 Year 3 Years Catholic CF Long-Term Growth Fund

  • 0.4

11.5 6.0 Catholic CF Balanced Fund

  • 0.6

9.9 5.2 FAOG Community Foundation Median*

  • 0.8

10.4 5.8 CPI +5% 2.1 7.8 7.2 Morningstar Moderate Allocation Index

  • 1.3

7.7 4.9

*Community Foundations with $25-$50MM in assets

Investment Returns through 3/31/18 (%)

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Asset Allocation Strategy

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Asset Class Long-Term (%) Balanced (%)

Total Public Equity 63.5 50.7

US Large/Mid Cap 21.5 17.2 US Small Cap 9.7 7.2 Non-U.S. Developed Markets 24.1 19.5 Emerging Markets 8.2 6.8

Total Alternatives 19.5 15.2

Hedge Funds 15.4 11.8 Real Assets 4.1 3.4

Total Fixed Income and Cash 17.1 34.1

Aggregate Bonds 4.5 15.4 TIPS 4.1 5.8 Global Bonds 4.2 5.0 High Yield 3.9 4.9 Cash & Equivalents 0.4 3.0

Portfolios are built to provide high single digit returns that can keep up with a 5% spending ratio + inflation to maintain the purchasing power of the corpus in perpetuity

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Manager Due Diligence

  • Aligned Ownership Structure
  • Long-term Oriented Client

Base Including Insider Capital

  • Appropriate Asset Base
  • Long Term Oriented Business

Plan

  • Low Personnel Turnover
  • Succession Plan
  • Strategy Throughout the Cycle
  • Investment Edge Generates

Superior Risk-Adjusted Return

  • Focus on Core Competency

Stability Consistency Alignment

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Always looking for opportunities to upgrade

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Manager Roster

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Large/Mid Cap Equity Comerica S&P 500 Catholic HS Managemennt US Small Cap Vulcan Non-US Developed Markets Equity Aberdeen EAFE Ethical DFA International Social Emerging Markets Equity DFA EM Social Aggregate Fixed Baird TIPS Vanguard Global Fixed Colchester High Yield KDP Hedge Funds Owl Creek SRI Bogle SRI Lone Juniper Liquid Real Assets Van Eck

Long-Term Growth Fund

Large/Mid Cap Equity Comerica S&P 500 Catholic US Small Cap Vanguard Non-US Developed Markets Equity Aberdeen EAFE Ethical DFA International Social Emerging Markets Equity DFA EM Social Aggregate Fixed Baird TIPS Vanguard Global Fixed Colchester High Yield KDP Hedge Funds Owl Creek SRI

  • J. Hancock Seaport (Wellington)

Liquid Real Assets Van Eck

Balanced Fund

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Managers Adhere to USCCB Investment Guidelines

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  • Socially Responsible Investment Guidelines from the

United States Conference of Catholic Bishops are widely understood and many managers offer fund vehicles that adhere or are willing to customize separate accounts

  • Colonial has decades of experience building USCCB

compliant portfolios for Catholic clients and we have sourced a robust universe of opportunities

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New US Corporate Tax Rate Is More Competitive

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Lower Taxes Contributing to Earnings Recovery in US

Source: Strategas Research

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Earnings Recovery is Global

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Interest Rates Are Rising

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Despite Rate Increase, Stocks Still Attractive Relative to Bonds

Source: Strategas Research

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Regional Valuations Favor Non-US Markets

  • Shiller P/E ratios are quite high in the

US

  • Multiples appear to be more reasonable

in developed markets outside the US

  • Emerging markets are also relatively

inexpensive compared to history

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  • Source: Schiller PE data. Shiller PE is a measure of market price

that uses normalized earnings (higher level is more expensive)

  • Mean is the average for the period and standard deviation is a

measure of dispersion (68% of the returns are between one standard deviation above and below the mean)

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 1982 1985 1987 1990 1992 1995 1997 1999 2002 2004 2007 2009 2011 2014 2016

MSCI EAFE Shiller P/E

Mean ex 1998-00 One Standard Deviation 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 2005 2006 2007 2008 2009 2010 2011 2012 2012 2013 2014 2015 2016 2017

MSCI EM Shiller P/E

Mean One Standard Deviation 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 1880 1895 1910 1925 1940 1955 1970 1985 2000 2015

S&P 500 Shiller P/E

Mean ex 1998-00 One Standard Deviation

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Volatility Spike in Q1 But Still Not Excessive

Source: Strategas Research

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10 20 30 40 50 60 70 80 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

CBOE SPX Volatiltiy Index

~6 Years Annualized S&P Return = 16.1% ~6.5 Years Annualized S&P Return = 4.9% ~4 Years Annualized S&P Return = 15.0% ~6.5 Years Annualized S&P Return = -0.5% ~6 Years Annualized S&P Return = 14.8%

CBOE SPX Volatility Index

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Global Economy Continues to Improve

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Productivity Lag Could Be Worrisome

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Looking Ahead

 Focus  Keep Long-Term Time Horizon in Mind  Maintain Consistent Risk Exposure  Capitalize on Market Volatility - New Leadership Will Create Risk and Opportunities  Consistently Utilize Rebalancing Strategies

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Benefits with The Catholic Community Foundation of Santa Clara

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  • Diversified and thoughtful asset allocation
  • Manager access: institutional quality strategies
  • Multiple pools to align with donor priorities
  • Stewardship of assets
  • Experienced staff handling all compliance, audit and reporting needs
  • Conflict-free advisor experienced in Foundation & Endowment space
  • Experienced, high-quality Investment Committee which reports to

the Board

  • Follow Catholic Values USCCB Guidelines in manager selection