The endowment

The endowment of the Mohamed bin Zayed Species Conservation Fund was created in April 2009, with an initial allocation of $27.5m. Since then, it has been managed in such a way as to provide for the financial needs of the small grants programme in perpetuity.

The long-term objective of the endowment, as described in its Investment Policy Statement, is:

1. to make annual distributions for the benefit of species conservation, in accordance with the MBZ Fund’s spending rule;
2. to preserve the capital in US dollars over a 10-year time horizon; and, to the extent that these two objectives are met,
3. to grow the capital by having financial returns in excess of the distributions made.

Having celebrated its first decade at the end of April 2019, the endowment’s capital has risen from $27.5m to $29.6m, while $14.3m had been distributed in grants over the same period, achieving all three of the endowment’s goals.

The Fund’s Investment Policy targets a long-term rate of return on assets of 5% net, measured in USD and using a total return approach (income as well as capital gains). Over this first decade, the annualised net performance of the endowment has been +4.6%, approximately in line with the target.

In July 2015, the Fund appointed Perennium as its independent financial advisor. Perennium assists with establishing and reviewing investment policy, objectives and guidelines; defining strategic asset allocations; selecting investment options and managers; reviewing such options and managers over time; measuring and evaluating investment performance; and producing consolidated financial reports.

The future: 2019 and beyond

With the global economy in its tenth year of expansion, a recession may be imminent, and a slowdown in growth – led by the US and China – with periodic “growth scares” is the most likely outcome. Europe remains fragile, both economically and politically, and volatility in financial markets is likely to accelerate.

We are not, however, changing our asset allocation on the basis of market forecasts, and the investment philosophy of the Fund remains rooted in its three core tenets:

• The understanding that investing is about dealing with uncertainty. Trying to predict short-term market movements is a futile exercise. On the contrary, one must prepare for all eventualities.
• The focus on portfolio resilience, using components having the right level of true diversification (i.e., different behaviours). Portfolio construction is the key element of the investing value chain.
• The choice of a (very) long-term view. A long investment horizon also allows the use of a wider range of financial assets and a better connection with the real economy.