Three questions to Boudewijn de Blij, Executive Director,       Fund 1818

“Mission Related Investment (MRI) has helped to diversify and thus further strengthen our porfolio”

 

What was your initial reaction to the crisis?

When the credit crisis really started to bite, in October 2008, we were already in the middle of a transformation of our capital, which the crisis slowed down, but did not fundamentally affect. In spring 2008 we carried out an Asset-Liability Management (ALM) study.  On the basis of that study, the board decided in April that the invested capital, at that time just over €450 million, should be transformed into a more diversified and sustainable portfolio. The capital was invested in a worldwide portfolio of 60 per cent shares and 40 per cent bonds. The new portfolio will have fewer shares and bonds (40 per cent and 20 per cent respectively) and will also contain  real estate (15 per cent), commodities (10 per cent), fund of hedge funds (10 per cent). Finally, mission related investments (MRI) will account for 5 per cent.

 

How did you respond?

At the start of the transition the surplus of shares and bonds was sold and put in savings accounts. A small surplus of bonds was kept as an alternative for short-term deposits. When shares really started to glide down the slope, our assets were over 25 per cent liquid, and not affected, which gave a reassuring feeling in most uncertain times. Despite this, during the crisis our capital shrank to just over €360 million. At the end of August 2009 it was again above €400 million.

While the transition to many forms of investment such as real estate, hedge funds and commodities was delayed because of the crisis, this did not apply to MRI. With MRI, two demands are combined: financial profit and profit to society. The financial crisis strengthened the appeal of this because the profit for society remains even if the financial profit evaporates.

In the past year, we therefore spent a lot of time and effort in finding suitable opportunities for MRI. In a way, the Nutshuis can be seen as Fund 1818’s first MRI, although the financial profit is marginal compared with the profit for society. Other investments have better expected financial returns. Fund 1818 has invested in Stadsherstel Den Haag, an organization that purchases buildings of historic and/or architectural interest, renovates them and rents them out again. This is a fairly profitable enterprise, which also has benefits for society.

Not all mission related investments are so profitable. The investment in Den Haag Centraal, the weekly regional newspaper for the region of The Hague, has not yet paid any dividends. Like all newspapers it is losing advertising income, while the projected growth in the number of subscribers is hard to realize. In the meantime, the newspaper fulfils its basic function very well: providing The Hague with news about the region.

 

What’s next?

Fund 1818 will continue to look for new opportunities for MRI, as we still see this as a very good way to find good investments and fulfil our mission at the same time. While  failures cannot be avoided, we are learning a lot about the difficulties and possibilities of MRI this way. The most telling conclusion from our experience is that we need extra expertise. Current staff are perfectly capable of assessing the benefits to society of any project, but they are less able to judge the financial risks and possibilities. For most MRI investments, external experts are employed and we now have a small group of experts that are regularly involved in evaluating these. The ASN-bank, with which the fund cooperates on a regular basis, also provides expert advice.

All in all, we can conclude that the financial crisis has hurt Fund 1818 but that the damage is not much more or less than to other endowed funds. MRI has helped to diversify and thus further strengthen our porfolio.