At a time when shares in some of the world’s biggest investment banks are selling for pennies on the dollar, and Canadians have seen the Toronto Stock Exchange index and the value of the dollar plunge by as much as 25 per cent, conservative investment strategies are paying off for local governments and charitable foundations.
At the Resort Municipality of Whistler, where property tax revenues are invested until they’re needed, the impact so far has been minor.
Lisa Landry, general manager of economic viability for the RMOW, says the municipality recently changed its investment strategy.
In the past the RMOW would handle its own investments, which she says was time-consuming and complicated. This year the RMOW switched to the Municipal Finance Authority of B.C., where most local governments put their money into pooled investments managed by Vancouver-based Phillips, Hager and North Investment Management.
The municipality put roughly $16 million of tax revenues into the pooled money market fund, which is actually seeing some growth during the economic crisis. Another $20 million was invested in their Bond Fund, which saw a decline in value of roughly five per cent from July to September. Another portion, roughly $10 million was put into a term deposit at a fixed interest rate, and will go to the provincial tax bill in 2009.
Overall, Landry says the RMOW has been isolated from the worst of the economic crisis.
“I should make a point that a lot of the bad investments that people are reading about in the media are asset-backed securities, and I can say the RMOW has never owned any asset-backed security in their investment portfolio,” said Landry. “The brokers were offering them to us, but we never bought in.”
It’s unknown what the final impact might be to municipal finances, if any, by the time the RMOW’s investments are cashed in.
In 2007, the RMOW earned roughly $4.02 million in interest on its investments, approximately $700,000 more than predicted in the budget. That’s up from $2.72 million in interest from the 2006 financial year. The 2008 financials will be reported in August 2009.
Landry says the municipality has generally shunned higher risk investments and potentially higher returns. “When it comes to preservation of capital versus higher returns, we always come down on the side of preservation of capital,” she said, adding that the Community Charter doesn’t allow local governments to make certain types of risky investments. “The impact has been pretty minor in comparison to what’s gong on out there.”
As for the RMOW’s reserve funds, she says they are pooled in safe investments, and she has slowly been converting those investments to the Municipal Finance Authority. Most of those investments are long-term, in fixed income accounts, but she says there may have been minor short-term impacts on earnings.
“The fixed income investments haven’t been that hard hit, and in times like these there tends to be a flight to quality so everyone else is trying to buy the stuff that we’re only allowed to buy,” she said.
Landry also represents the RMOW on the board of the Games Operating Trust, which was created in 2003 to fund Olympic legacy facilities — the sliding centre, Nordic centre and high performance centre in Whistler and the speed skating oval in Richmond. The trust started with $110 million, half donated by the province and the other half donated by the federal government. By March 31, 2007, the trust had grown to roughly $133.6 million, although that declined to $128.9 million by Dec. 31, 2007.
Landry does not know how much the trust has been impacted by the economic crisis, but says most of the gains came as a result of equity investments. The funds are invested roughly 50-50 in fixed income and equity, and Landry expects to see “some impact” when the members of the board meet in the third week of November to discuss the third quarter. She could not estimate how much the value of the fund may have fallen in the last few months.
“To know what extent we’ll need to see the third quarter,” she said. “We do expect some impacted, but keep in mind that this fund was designed for the long term… and equities in the long term can give you a better return, but in the short-term you can see greater fluctuations.”
How the fund will be managed after the 2010 Games will be decided by the Whistler Legacies Society, but currently the Speed Skating Oval Fund and the Whistler fund each get 40 per cent of interest from investments for their venues, while the other 20 per cent goes into contingency. It’s expected that venues will draw on the interest only to help cover operating costs.
Charitable organizations have also seen some impact from the financial meltdown. The Vancouver Foundation, which has provided funds to Whistler non-profits in the past, was particularly hard hit. At the beginning of the year they had $760 million invested on behalf of 1,200 endowment funds, which has shrunk to $660 million as a result of the financial crisis.
In a normal year the Vancouver Foundation distributes about $40 million to charities and non-profits, spending only the interest the foundation makes on its capital. This year the Vancouver Foundation will have $10 million to $15 million less money to spend on charities and non-profits.
The Community Foundation of Whistler, which was founded in 1999, has roughly $3.5 million in capital funds, and in 2007 donated over $100,000 to 23 charitable organizations.
Executive Director Kerry Chalmers estimates that the fund has dropped by seven to 10 per cent in value in the last few months, but she will know better once the Sept. 30 report is finalized.
While that represents up to $350,000 in value, Chalmers says they have fared better than other community foundations and still expect to issue grants next year.
Some foundations have already said they would not give grants in 2009, using interest to rebuild lost reserves.
“Our portfolio has gone down, but we at the community foundation do invest for the long-term and have a conservative, well-balanced investment strategy that has allowed us to weather the storm immensely better than most investors out there,” Chalmers said.
“We’re looking at lower returns that the last couple of years where we’ve done well and grown, but you’re not going to see any growth from the last three months.”
Chalmers says it’s possible that they will have to decrease the amount handed out in grants next year, but the board won’t make that decision until December.
“I can say as a community savings account, we’re here for the long term,” she said. “We want to be a dependable resource for the community, and because of that conservative strategy we’re in a much better position than other investors or organizations. Ours is actually a good news story, when you compare it to others.”
