The review period comprised historic rate fluctuations, with the coronavirus pandemic having an indelible effect on the world economy.
At the end of the period under review, the fair value of the Finnish Cultural Foundation’s assets was EUR 1.782 billion, of which investment assets accounted for EUR 1.652 billion. Despite the exceptional circumstances of the year, return on investment for the operating period from 1 October 2019 to 30 September 2020 was good, at 7.2% (benchmark index 5.6%).
The booked surplus for the year was EUR 7.9 million. There was EUR 32.1 million in capital gains from the sale of assets, of which EUR 24.7 million were directed to strengthening the foundation’s working capital. Of that sum, EUR 4.7 million was used to support the regional funds’ grant activities. Income from investments allocated to operations and donations intended for distribution exceeded the sums distributed in grants and other expenses from statutory operations by EUR 28.5 million.
A total of EUR 17.7 million was received in donations and bequests, of which EUR 17.1 million were capital donations and EUR 0.6 million were for distribution. During the period, 11 donor funds were established, six of them under the central fund and five under regional funds. One donor fund was closed down. As of 30 September 2020, the Foundation managed 866 funds.
The review period began on a positive note in the market when the long-ongoing trade war between China and the USA showed some signs of cooling off. The situation changed swiftly in February-March, when coronavirus started spreading around the world, causing near-hysteria in the risk markets. Government-imposed restrictions and virus fears caused financial activity to grind to a halt, and at the end of March the global stock market was worth around 30% less than in early January. The historic health and financial crisis led to central banks and governments launching unprecedented stimulus and recovery packages. These actions and easing of the virus situation raised share indices back to, or even past their starting points during the northern hemisphere’s summer.
Even though companies on the whole achieved better results than was feared in the spring, there were huge differences between sectors. While the tourism and events sectors were hard hit by the pandemic, technology companies benefited from the shift to remote work. Toward the end of the review period, uncertainty was heightened not only by the virus but also by the approaching US presidential elections and by Brexit, for which a deal was still being sought before the year-end. Market uncertainty is set to continue until a functioning vaccine becomes widespread.
In other words, the past operating period was very dynamic. While various markets and industries were developing fairly steadily at the beginning of the year, after the sharp dip experienced during the year, different sectors have been on different paths. While the Nasdaq Composite index, which tracks the US technology sector, gained 25.5% (measured in euros) during the year, the industrially focused Dow Jones Average was down by 6.6%. Differing economic structures and nations’ varying choices in how to deal with the pandemic have also had their impacts on market gains. The 12-month change in the STOXX Europe 600 index was negative by 7.7%, while the more technologically weighted US S&P 500 was positive by 5.1%. Finnish stocks have performed well, globally speaking, with returns of 10.4%.
The Cultural Foundation’s stock portfolio return was 11% (benchmark index 6.7%), partly thanks to the strong performance of the Huhtamäki share, at 17.8%. Both our Finnish and our global investments made higher returns than their benchmark indices.
The return on fixed-income investments was positive by 0.3%, with the benchmark index returning 0.9%. Here, the FCF portfolio differs from the benchmark in not containing government loans, which have acted as a sort of safe haven during the COVID crisis. The return on real estate and alternative investments fell down to -1.6%.
The foundation’s investments are evaluated using environmental, social and corporate governance (ESG) indicators. Evaluations are done against international standards, by applying data generated by a commonly approved global operator. Development was positive also in this respect, with an increase in the portfolio’s responsibility score and in the coverage of reporting compared to the previous period.