Operations, 2018–2019

Good income from investment amid political uncertainty


After two fairly level years, the value of the Cultural Foundation’s assets now rose to a new high, thanks to the favourable development of its largest holding.

At the end of the year under review, the fair value of the Finnish Cultural Foundation’s assets was EUR 1.69 billion, of which investment assets accounted for EUR 1.508 billion. For the period from 1 October 2018 to 30 September 2019, the Foundation reached an excellent return on investment of 10.7% (compared to 3.7% for the benchmark index). The share price of the Foundation’s largest stock investment, the global packaging company Huhtamäki, experienced a meteoric rise of 35.7% during the year.

The accounts show a surplus for the financial year of EUR 13.3 million for the Foundation. Capital gains from the sale of assets totalled EUR 47.7 million, and, exceptionally, EUR 34.5 million of this was channelled to reinforcing working capital. Of that sum, EUR 4.5 million was used to support the regional funds’ grant activities. Accounting for capital gains, the Foundation’s income from investments and received donations for distribution exceeded the payment of grants and expenses from other statutory operations by EUR 33.5 million.

The Foundation received a total of EUR 13.7 million in donations and bequests, comprising EUR 12.9 million in capital donations and EUR 0.8 million in donations intended for distribution as grants. During the period, eleven new donor funds were established: ten under the Central Fund and one regionally. On 30 September 2019, the Foundation managed 856 funds.

The period under review was characterised by political uncertainties. Towards the end of 2018, stock markets experienced a sharp decline. From the beginning of 2019, the mood brightened somewhat and share prices began to rise again. Expectations of an accommodative monetary policy and of the gradual cooling of the US-China trade war boosted investors’ risk willingness. In summer, the escalation of the trade war caused a new downward trend in stock prices, which was not reversed until the autumn when the United States and China reached a truce and reinitiated trade negotiations.

The trade war has caused a weakening of the outlook for Europe. Political resolutions and potential new regulations related to climate change have delayed investment into industry, in particular. Brexit negotiations did not progress due to the United Kingdom’s domestic confusion, and Finland’s outlook is weighed down by trade wars and the global industrial recession.

The central banks have not been idle before the weakening prospects: The US Federal Reserve lowered its key interest rate in July and September, while the European Central Bank announced in September that it would reinitiate its bond-buying programme.

In the uncertain market conditions, investors have transferred assets into bonds with high credit ratings, which are seen as a safe haven. In the fixed-income market, the situation is confusing and highly exceptional in that around one third of the world’s bond markets now operate under negative interest rates.

In spite of strong fluctuations, stock markets generally had good returns during the period. Measured in euros using the MSCI index, stock market yields were 8.5% globally, 10.3% in North America and 5.7% in Europe. The emerging markets’ yield was 4.4 %. The figure for Finland was negative, however, at −1.4%. During the period, the return on the Cultural Foundation’s equity investments was good, at 14.1% (compared to 2.4% for the benchmark index). The difference is mainly due to Huhtamäki and the 35.7% rise in its share price.

The return on the Foundation’s fixed-income investments, including money market investments, was 2.2%, versus 7.1% for the benchmark index. The difference compared to the benchmark is explained by three factors: money market investments make up around one half of the Foundation’s fixed-income investments; our portfolio does not include the Eurozone’s government loans; and the duration of the bonds in the portfolio is notably short. The return on other investments – mostly private equity and private credit funds – was 7.5%, and on real estate investments, 7.8%.

For the Cultural Foundation, the greatest uncertainties spring from the performance of the global economy and the capital markets. The extension of the US-China trade war, the delay of Brexit decisions, and Germany’s prospects have increased unpredictability. If a global recession kicks in, the capital markets may experience strong fluctuations.

The Cultural Foundation’s assets are diversified across various asset classes, and as a long-term investor, it has a good risk and crisis tolerance. Thanks to extensive cash reserves, the Foundation’s expense budget will withstand a long-term stock market downturn, if necessary.