The Pittsburgh Foundation

Investing in the future Foundation’s head of investments reflects on 2021 performance and what 2022 may bring.

Jonathan Brelsford, senior vice president of Finance and Investments, in his office in Downtown Pittsburgh. Photo by Joshua Franzos.

Kitty Julian

Interview by Kitty Julian
Kitty is director of communications at The Pittsburgh Foundation.

As the Foundation closes the books on 2021, assets were valued at $1.5 billion, a remarkable figure given the ups and downs of the pandemic economy. To put it all in context, we talked with Jonathan Brelsford, CFA, CAIA, the Foundation’s senior vice president for Finance and Investments. He provides his take on market performance, private equity, jobs and inflation. He also offered what the upcoming year may bring for the Foundation, its donors and their collective grant-making power.  

Supply chain disruptions were a significant factor in everyday life for many Americans last year. How has the supply chain and job loss contributed to inflation and pandemic-related economic uncertainty?  

We’ve lived through one of the most remarkable periods in time, when portions of the global economy literally shut down. Hospitality, travel and, to a degree, manufacturing came shuddering to a halt. So did the supply chain. The reason why we saw shortages in household goods such as paper towels and other items is because all the supply chain distribution channels switched to home, not just to home and office. Those sorts of disruptions have continued for the past year and a half and have slowed down an economy that had been moving at high speed.  

We also saw tens of millions of people put out of work. The job loss figures rivaled those of the Great Depression. But rapid fiscal and government responses from the Federal Reserve turned that around immediately and we had only two months of negative performance of the stock market in 2020. In the U.S. and across the world, fiscal and monetary stimulus has continued to push the economy forward. As a result, corporate profits are at record highs. Underlying values are improving while interest rates dropped to all-time lows, providing more fuel for the economy. Now that we’re seeing the supply chain resuming in fits and starts, we will also see fits and starts in the market as the Fed attempts to normalize the economy and withdraw fiscal stimulus.  

What about employment and job loss?  

Long-term unemployment insurance benefits have disappeared, but the economy is still reeling as a result of people not working. Though unemployment is low, there are still millions of people out of work who are also not looking for work right now, which is reflected in the labor participation rate. That’s contributing to inflation as employers are raising wages to attract workers. As a result of that, and worldwide work stoppages from the pandemic, products aren’t getting made or shipped effectively. Combined this results in a supply chain disruption with negative impacts on the economy. If we enter a “stagflation” era where people stop spending and prices rise, we’ll see a reduction of profitability that could ultimately lead to a drop in the stock market.  

What are your thoughts on interest rates? Are you expecting increases?  

Interest rates are so low that they will most likely increase. The Fed is starting to discuss an increase in the base interest rates that affects all other interest rates in the economy. Borrowing rates will go up, which will have a negative impact on equity prices. For example, in real estate, low interest rates mean that buyers can pay more for a piece of property. “More house for the money” has been driving increases in commercial and home real estate markets. As interest rates rise, people won’t be able to afford those properties because they’ll have to direct more of their money to financing and interest and less to the actual price of the property.  

So how is the Foundation responding to these variables?  

First I should say that we don’t respond directly to economic or market actions. Markets move too quickly for us to effectively do that.  Instead, we have a diversified portfolio of investments that are structured to deliver returns in many different market regimes whether they be deflationary or inflationary, it consists of not just equity and bonds, but also private equity and hedged equity and hedged credit. This should lower volatility in our total portfolio. And while it has helped us that the U.S. stock market has done exceptionally well, we are also diversified internationally. So, as the global economy starts improving, we expect to see increases in international markets that may rival or outstrip performance of our U.S. assets that have already appreciated as our domestic economy has opened more quickly from the pandemic.  

What has the impact been on the Foundation’s portfolio as it relates to grantmaking?  

Between 2008 and 2021, U.S. markets have gone straight up, resulting in massive returns, that have more than doubled assets in U.S. equity markets. The Foundation’s investments are diversified by design. Over the past three years, we’ve seen substantial returns to our portfolio averaging about 10% over the past three years. Until this year, inflation has remained muted, so we have exceeded our policy target of 5% plus inflation that has been coming in at only about 7.5%, meaning we have seen our portfolios grow in a compound manner by more than 2.5% every year.  

Because returns to our portfolio have outpaced inflation, we should be able to keep pace with future bouts of inflation that could otherwise made it very difficult to meet that policy target. In other words, we have a cushion that we’ve earned in advance that helps insulate us. 

How does market performance translate to community impact?  

As a result of our investment portfolio, we topped $67 million in grants in 2020. Of this, $10 million was raised for COVID relief. Those funds were awarded back out almost immediately to the community. That is an anomaly, but there is no question that increased grantmaking is on the horizon. In 2021, we raised $69 million and awarded $57 million out to the community, with $26 million of those grants coming from donor-advised funds. As assets increase, so will grant dollars. We’re also seeing an increased willingness among donors to partner with us on specific community needs. The secondary impact of market performance for us is that donors themselves are wealthier and as a result there is a high correlation between our success in fundraising with that of the markets. Some goes right out into the community and some gets reinvested with us to compound into the future. 

The reality is the growth in the Foundation over the past 10 years is the result of our generous donors coupled with one of the best stock markets in history.   

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Published Feb. 9, 2022

File under Philanthropic Investment