The endowment funds of the University of Victoria Foundation (the “Foundation”) are invested in accordance with the Foundation’s Statement of Investment Objectives and Guidelines (SIO&G). The SIO&G sets out the categories of permitted investments, diversification, asset mix and rate of return expectations. A fundamental underlying concept is that the Foundation’s endowed assets are intended to exist in perpetuity.

As a result, the Foundation has a long-term investment horizon and focuses on long term returns. The investment objectives of the Foundation reflect this and are focused on:

•  Preservation of capital in real terms;
•  Generation of sufficient annual cash flow to meet annual distribution requirements; and
•  Growth of the retained assets to meet rising costs over the long term.

 The SIO&G is reviewed annually by the Board of Directors of the Foundation.

The long-term investment goal of the fund is to achieve a minimum annualized rate of return of 4.5% in excess of the Canadian Consumer Price Index. Persistent inflation and volatility in the equity markets led the fund’s performance to show mixed results compared to the investment goal. The fund underperformed its investment goal over the 1-year to 5-year period. The Foundation outperformed against its investment goal over a 10-year period.

Fund Return Relative to Investment Goal

Total Gross Fund Return vs Investment Goal of CPI + 4.5%, as at March 31st, 2023

The Foundation’s Main Investment Pool is constructed with an asset mix biased to equity investments, representing a fully diversified mix of asset classes optimized based on forecasts of risk and return, which may include equities, fixed income, real estate, infrastructure assets, private equity and hedge funds.

Main Investment Pool Actual Asset Allocations

Assets Under Management $523.5 Million, as at March 31st, 2023

The Foundation's actual allocation to each asset class remains within the approved investment policy ranges.

The Fossil Fuel Free Investment Pool (“FFFIP”) is an alternative investment option for donors who prefer to not have their endowed donations invested in companies directly involved in the extraction, processing and transportation of coal, oil or natural gas “fossil fuels”. The FFFIP also excludes companies included in the “Carbon Underground 200” list. The FFFIP was created in 2016 in direct response to student and faculty calls for action to address climate change and provide donors a fossil fuel free investment option. The FFFIP was seeded by the university with $25K from working capital. With help from student feedback over the past year to increase awareness of donor investment options, the FFFIP has grown assets under management to over $1.1 million in 2022.

In 2020, the Foundation changed the FFFIP’s manager and rebalanced the equity only pool with an asset mix consisting of a 65% allocation to equities and a 35% allocation to fixed income, to better diversify the pool and reduce its volatility. While the FFFIP is still less diversified than the Main Investment Pool and may exhibit higher volatility and risk, both pools are expected to offer comparable long-term performance meeting the Foundation’s investment goals.

The FFFIP returned -1.2% this year, underperforming the benchmark (-0.4%) by 0.8%. The material difference between fund return and investment objective of CPI+4.5% is driven by persistent high inflation and is being watched closely.

FFFIP Actual Asset Allocations

Assets Under Management $1.1 Million, as at March 31st, 2023

Asset allocation is the main determinant of long-term portfolio risk and return. Ultimately the Foundation’s rate of return and volatility is driven by the selected asset classes and their interaction with one another. Diversification across various factors such as asset classes, investment styles, investment time horizons, geography, and economic outcomes improve portfolio risk and return characteristics.

In 2020 the Foundation updated its asset allocation strategy based on a comprehensive asset liability study.  An objective of updating the asset allocation strategy included ensuring that material risks and opportunities are appropriately addressed across the portfolio.

Each organization serves a different purpose in terms of supporting the university’s financial needs. As a separate legal entity from the university with different fiduciary responsibilities, investment horizons and purpose, the Foundation’s investment policy has important distinctions from those of the university. There will always be differences in the investment strategy and tactical execution between the university’s investments that fund working capital and the Foundation’s investments that fund endowments. 

To fund endowments, the Foundation’s long term strategic approach is based on identifying an asset mix that will both preserve and grow capital to maintain the purchasing power of the fund against inflation while generating sufficient annual growth to make annual distributions to the university. The asset mix will be weighted towards growth assets such as public equities, infrastructure and real estate while maintaining a portion in fixed income for portfolio protection. The Foundation’s tactical approach is to make minor weighting changes to the long-term asset mix according to market conditions and outlook.

To fund working capital requirements, the university’s asset mix has the primary goals to preserve capital, provide liquidity and maintain purchasing power. Short term investments are needed to fund daily operational needs and arise from:

•  Operating and research funding received in advance;
•  Unspent annual budgets that are carried forward;
•  Insurance reserves; and
•  Other funds set aside for future purposes such as the replacement of equipment major capital projects and other significant initiatives.

The University of Victoria and the Foundation are aligned in recognizing climate change as a key global issue of our time and in adopting a Responsible Investing Policy. The two organizations are aligned in using the following tools to mitigate climate change:

• carbon footprinting – progress on achieving targets will be reported annually with review of the target with periodic reviews;
• collaborations to enhance ESG standards and disclosure requirements by joining the University Network for Investor Engagement (UNIE) and supporting the Task Force For Climate-Related Financial Disclosures (TCFD);
• continued selection of investment managers committed to climate change who actively engage with companies to drive down emissions and increase disclosure; and
• increase impact investing – continued financing of sustainable projects like the new student housing and dining project which meets (LEED) V4 and passive house standards – the most rigorous global building standards for sustainability and energy efficiency.

Responsible investing incorporates environmental, social and governance (ESG) factors into investment decision making, recognizing that these factors can be important determinants of long-term returns.

Source: unpri.org

• Governance factors are important as company performance can be significantly influenced by issues  such as the composition of the Board of Directors, executive compensation, voting rights of shareholders.
• Social factors are important to company performance as constructive labour management relations, understanding customer concerns regarding corporate behaviour in other jurisdictions, support of local communities for a company’s operations, among many other factors, can have a significant impact upon future profitability and returns.
• Environment impacts are important as companies that negatively impact the environment are both increasingly facing regulatory and legal action, and also demands from customers to improve their environmental impact, all of which are likely to have significant long-term economic consequences.

For more information on Responsible Investment please visit here.

University of Victoria Foundation Responsible Investment Milestones

The Foundation is committed to the integration of environmental, social, and governance factors (ESG) into its investment decision making and the critical need to address climate change impacts on society and in every university domain (research, education, community engagement, and campus operations). Its goal is to be a leader in ESG, including responding to climate change.

As long-term investors, the Foundation Board believes responsible investing can have a positive effect on long-term financial performance and investment returns. To support our commitment to sustainability and to articulate our goals with respect to foundation investments, the University of Victoria Foundation updated its investment beliefs in 2020 to recognize climate change as a key issue of our time and adopted a Responsible Investment Policy in November 2021.

Responsible Investment Policy

As a signatory to the Principles for Responsible Investment (the “PRI”), the Foundation Board views these PRI Principles as a key RI framework and, where consistent with its fiduciary responsibilities, aligns the Responsible Investment Policy to the following commitments:

1. We will Incorporate ESG issues into investment analysis and decision-making processes
2. We will be active owners and incorporate ESG issues into our ownership policies and practices
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest
4. We will promote acceptance and implementation of the PRI Principles within the investment industry
5. We will work together to enhance our effectiveness in implementing PRI principles
6. We will report our activities and progress towards implementing PRI principles

The policy also outlines tools we will use to achieve our goals, including aligning the disclosure practices of our investment managers with recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD), exercising active ownership and setting carbon intensity reduction targets.

Please click here to see the full Responsible Investment Policy.

The United Nations-supported PRI Initiative is the leading global network for investors to publicly demonstrate their commitment to responsible investment, to collaborate and learn with their peers about the financial and investment implications of ESG issues, and to incorporate these factors into their investment decision-making and ownership practices. Responsible Investment is a process tailored to fit each organization's investment strategy, purpose, approach and resources. 

The Foundation views the Principles as a framework for Responsible Investing and, where consistent with our fiduciary responsibilities, we commit to the following six Principles: 

• Incorporate ESG issues into our decision-making processes;
• Encourage investment managers and portfolio companies to be active owners and to incorporate ESG issues into investment/ownership policies and practices;
• Encourage investment managers to seek appropriate disclosure on ESG issues from the entities in which the Foundation invests;
• Promote acceptance and implementation of the Principles within the investment industry;
• Work together to enhance our effectiveness in implementing the Principles; and
• Report on our activities and progress towards implementing the Principles.

All of the Foundation’s external investment managers are PRI signatories.

Proxy voting is an essential engagement tool in our commitment to responsible investing. The Board has delegated voting rights acquired through listed equity investments to the investment managers. Investment managers are expected to vote all proxies in the best interests of the beneficiaries of the Foundation, and to take ESG factors into account when they vote proxies for companies held in any fund in which the Foundation is invested. To this end, the proxy voting policies and practices of listed equity investment managers are reviewed as part of the manager selection and monitoring process.

Investment managers are required to disclose their proxy voting policies. The Board encourages investment managers to adopt proxy voting policies incorporating ESG factors, where this is not already the case.

Investment managers are required to report quarterly to the Foundation on how proxies were voted on the Foundation’s behalf, if proxy voting policies were followed, and any material deviations.

The most common types of proxy votes are:

• Board Opposition;
• Say on Pay Opposition; and
• Shareholder Proposal Support.

For more information on active ownership please visit here.

The Global Impact Investing Network (GIIN) defines impact investments as investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.

An example of impact investing at the local level was the 2019 decision by the UVic Foundation to invest a portion of its capital into the new University of Victoria student housing and dining complex. This project will provide much-needed housing and a new dining facility for 621 students who are currently living off-campus.  The Foundation’s investment allowed the project to proceed for UVic with an attractive financial return for the Foundation, including measurable positive social and environmental impacts. The design and construction of the new buildings will meet the most rigorous global building standards for sustainability and energy efficiency.

Climate change is recognized as a key global issue of our time leading to profound social, economic and environmental challenges in Canada and around the world. Therefore, the carbon emissions that cause climate change are a key consideration when making investments. The Task Force on Climate-related Financial Disclosures (TCFD) framework is the leading standard for assessing investment risks and opportunities associated with climate change. Climate change investment risks are both transitional and physical. They are explained in the TCFD framework as outlined below and more information on the TCFD can be found at https://www.fsb-tcfd.org/. 

Transitional Risk - Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations. 

Physical Risk - Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organizations’ premises, operations, supply chain, transport needs, and employee safety.

The Foundation is committed to the integration of environmental, social, and governance factors (ESG) into its investment decision making and the critical need to address climate change impacts on society and in every university domain (research, education, community engagement, and campus operations). Its goal is to be a leader in ESG, including responding to climate change.

As long-term investors, the Foundation Board believes responsible investing can have a positive effect on long-term financial performance and investment returns. To support our commitment to sustainability and to articulate our goals with respect to foundation investments, the University of Victoria Foundation updated its investment beliefs in 2020 to recognize climate change as a key issue of our time and adopted a Responsible Investment Policy in November 2021.

Responsible Investment Policy

As a signatory to the Principles for Responsible Investment (the “PRI”), the Foundation Board views these PRI Principles as a key RI framework and, where consistent with its fiduciary responsibilities, aligns the Responsible Investment Policy to the following commitments:

1. We will Incorporate ESG issues into investment analysis and decision-making processes
2. We will be active owners and incorporate ESG issues into our ownership policies and practices
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest
4. We will promote acceptance and implementation of the PRI Principles within the investment industry
5. We will work together to enhance our effectiveness in implementing PRI principles
6. We will report our activities and progress towards implementing PRI principles

The policy also outlines tools we will use to achieve our goals, including aligning the disclosure practices of our investment managers with recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD), exercising active ownership and setting carbon intensity reduction targets.

Please click here to see the full Responsible Investment Policy.

A fundamental aspect of ESG integration and the movement behind the PRI is engagement rather than divestment. ESG integration enables the investor to engage with its portfolio companies to encourage change and evolution in business activities and practices. By doing this investors can be a powerful force for positive change in many companies and sectors. 

The Foundation believes divestment is an intentional outcome of an overall Responsible Investment strategy that includes active stewardship (i.e., engagement, proxy voting and impact investment). The Foundation’s ultimate goal is to support companies with strong Responsible Investment practices and with attractive long-term growth potential who are on the path to net-zero carbon emissions, while avoiding industries and companies unwilling or unable to evolve.

The Foundation’s holdings in energy stocks has steadily decreased over the past five years, driven by adjustments to portfolio asset mix as well as changes to investment managers. Currently, The University of Victoria Foundation no longer holds any equities involved in the extraction and processing of coal, oil or natural gas.

The Foundation believes infrastructure investments provide an important opportunity to mitigate climate change risks while providing strong risk-adjusted performance. The Foundation’s infrastructure investments do not include the extraction and processing of coal, oil or natural gas, and the Foundation’s infrastructure managers have committed to reach net zero greenhouse gas emissions by 2050. Recently, the Foundation expanded its impact portfolio by investing in the Brookfield Global Transition Fund which has a strategy to invest in opportunities that advance and facilitate the global transition to a net-zero carbon economy.