30 June 2010

Great disparity in foundations’ return

The Swedish National Audit Office (Riksrevisionen) has studied eight foundations’ asset management in a period of marked volatility in the financial and capital markets. During the sharp decline of 2008, some foundations found their wealth severely eroded. In 2009, the foundations recouped their losses to a varying degree.

The foundations studied manage assets in excess of SEK 30 billion and distribute money in the form of research grants. The size of the returns determine the scale of this support.   The Audit Office examined whether asset management at the eight foundations established by the state took place in a competent manner. The review focused on how far the foundations were prepared for, and how they performed, the task of managing their assets during a period of extreme volatility. The Audit Office´s overall conclusion was that, although six of the eight foundations were well prepared, the foundations could improve their preparedness.
Appropriate The Audit Office´s assessment was that, broadly speaking, the foundations´ conduct of asset management during the period concerned was appropriate. However, the Office questioned whether the Baltic Foundation had followed its own statutes regarding secure investment.

Return for the eight foundations varied widely during the period. Their aggregate assets in 2007 amounted to SEK 42 billion; for 2008, the total was SEK 31bn — a fall of 11bn. In one foundation, the assets were almost halved in 2008. In three foundations, the fall did not exceed one-tenth. In the first nine months of 2009, a total of SEK 4bn was recouped.

Important The Audit Office disapproves of the governing boards of foundations delegating responsibility for financially important decisions to the extent that they have done. A board should itself decide on target returns, on the maximum permitted risk in asset management and on the strategies proposed in the course of administration. Where delegation is practised, stringent monitoring and control requirements are in place so that the board can actively control the risk level in asset management.

´The foundations were formed with public funds. So it´s important for the Government to evaluate asset management in the foundations reviewed, and this hasn´t happened up to now,´ states Auditor General Claes Norgren.
More freedom In spring 2010, the Riksdag (Swedish Parliament) decided to give greater freedom to several of the foundations examined. Accordingly, only two board members are now appointed by the Government. This change represents a reduction in the Government´s scope for holding the board accountable.


The foundations audited were the Chalmers University of Technology Foundation (Chalmers), the Knowledge Foundation, the Bank of Sweden Tercentenary Foundation, the Foundation for Baltic and East European Studies (the Baltic Foundation), Mistra, the Swedish Foundation for Strategic Research (SSF), the Swedish Foundation for International Cooperation in Research and Higher Education (the STINT Foundation) and the Swedish Foundation for Health Care Sciences and Allergy Research (the Vardal Foundation). The review supplements a previous study, How Wealth is Administered (RIR 2007:30), relating to asset management under more normal conditions.

Mistra Mistra