March 2007
March 01, 20072006 ANNUAL REPORT NOW AVAILABLE
The Annual report contains complete details about the Foundation’s activity and financial status as well as messages from Rinpoche and Cangioli Che. The report and a summarized, audited Statement of Khyentse Foundation’s Financial position are available in a downloadable PDF.
MESSAGE FROM THE EXECUTIVE DIRECTOR
Cangioli Che outlines the successes of the Foundation’s first five years and provides a glimpse of the future.
Dear Friends and Supporters of Khyentse Foundation,
Khyentse Foundation was founded by Dzongsar Khyentse Rinpoche in 2001 to establish a system of patronage to support the Buddha’s vision of wisdom and compassion. In November 2006, we celebrated our fifth anniversary. I hope that this annual report will give a small taste of what the Foundation has accomplished in those five years, under Rinpoche’s guidance.
Building the Five Projects
In the first five years, the Foundation concentrated on building the basic infrastructure to translate Rinpoche’s vision into action programs.
At the outset, Rinpoche identified five priority projects that form the basic structure of the KF support system. Much progress has been made over the years, and these five projects continue to serve as the framework to deliver our services. For details, see the Five Projects page of this site.
Building the Financial Resources
During the past five years, donors from around the world contributed and pledged over US$6 million to support the activities of Khyentse Foundation, with a record $1.8 million received in 2006. A portion of these funds was used to support the five projects, including the endowed chair of Buddhist studies at UC Berkeley. More importantly, the funds were used to build up the three endowments—for monastic education, scholarships, and publications—to ensure long-term on-going support for these priority areas. As of December 31, 2006, our total portfolio for these three endowments reached over $5 million.
Another major effort is to build the Foundation’s investment strength. In addition to the five-member investment committee appointed by Rinpoche, a panel of advisors was invited to provide professional recommendations. The highly qualified and well-informed investment team has adopted a prudent, flexible, and cooperative approach to managing the funds, which resulted in excellent returns. In 2006, the average total return of the KF portfolio was 18%, surpassing our expectation of a 5% return, and also surpassing average market indices.
In response to the growing complexity of the Foundation’s financial position, a budget committee was formed in 2006 to better analyze, plan, and manage the Foundation’s finances.
Building the Network of Supporters
The Foundation is now supported by a strong group of sponsors and volunteer team members. Some of our supporters contribute financially, and others contribute their time, energy, and professional skills. Many contribute in both arenas. And both types of contributions are instrumental in building the KF support system.
As of year end 2006, close to 1,000 donors and supporters from 30 countries support the Foundation. The most active countries are Taiwan, the USA, and Hong Kong, followed by Malaysia, the UK, Canada, Australia, Germany, and many others. We now have active representation in 14 countries around the world.
One encouraging trend is the success of our monthly donors matching funds program, with over 250 members in many countries. The program now provides the funds for more than 50% of the Foundation’s on-going project grants.
In spite of its significant growth during the past five years, the Foundation continues to be staffed by an all-volunteer team, and is able to maintain administration costs at 2% of revenue.
Supporting Those Who Are in Need
Under Rinpoche’s guidance, our support initially went to Tibetan Buddhism, but we are now going “beyond Tibetans” and “beyond monks and nuns.” Our approach is nonsectarian, rimé in the broadest sense of the word. For details, see Who We Help.
The Foundation also takes the initiative in identifying and reaching out to people and projects that need funding and support. In coming years, we expect to establish more programs along the lines of the Scholarships for Cambodian Monks program.
Looking Forward to the Second Five Years
In a series of planning meetings in 2006, Rinpoche and the Board of Directors set ambitious goals for the Foundation’s next five years. Through the Foundation’s five projects, we aim to: 1. Support non-Tibetan and lay students in study and practice in all Buddhist traditions 2. Produce Buddhist teachers and scholars to influence the world 3. Make Buddhist texts readily available to all who wish to study 4. Promote the study of Buddhism in major universities around the world 5. Support Buddhist education for second-generation Buddhists, where such studies are not readily available
The Foundation has set high financial goals in order to have the necessary capital to realize these program goals. We hope to increase our total endowment to $9 million by 2011 (from $5 million in 2006), primarily to fund the scholarship, monastic education, and publication projects. Endowed chairs of Buddhist studies will be funded separately, and Buddhist education will be funded on a project and need basis. We have also identified communications, fundraising, and community involvement as three main challenges in the coming years.
The first five years were a good beginning, but many more challenges lie ahead in the next five. We still have a very long way to go, and it’s up to all of us to work together to make Khyentse Foundation truly a patron of Buddhism, following in the footsteps of King Ashoka.
May the work of Khyentse Foundation benefit all sentient beings.
Cangioli Che, Executive Director
INVESTMENT COMMITTEE DELIVERS 2006 REPORT
The year 2006 was a time of continuity and progress for the global economy and for the Khyentse Foundation investment portfolio. The global economy continued to grow at an impressive pace, with a broader geographical spread, and the conditions of the financial markets remained optimistic. The environment was still free of economic crises—a situation that is likely to change in the coming years.
Once again, the Khyentse Foundation Investment Committee was able to surpass our investment goal, returning 18.2% in 2006. At year end, assets composing the Endowment for Monastic Education, the Scholarship Fund, and the Publications Fund totaled US$5.6 million, divided among the following asset classes: 59% equities, 25% bonds, 13% cash, and 3% gold.
Since the Endowment for Monastic Education was launched in July 2002, we have consistently returned more than our goal of 5% per annum. We have also consistently surpassed our benchmark, a mix of the most important indices weighted according to our maximum exposure per asset class. In 2002 we started accumulating funds. In 2003 our return was 11%; in 2004, 11% again; in 2005, 9.5%; and in 2006, our gains were 18.2%.
This year the largest contributor to the portfolio’s performance was our international equity fund, which made up 20% of the portfolio and yielded a 25% return. China made up 11% of the portfolio, with returns as high as 114%. India was 4% of the portfolio, with a 38% gain. The major detractors were a loss incurred in our energy trust investments due to changes in tax regulations in Canada and the poor performance of Japan in general, especially compared to the other markets.
Currency diversification is still an important topic to the Investment Committee. As of the end of 2006 we have 45% exposure to US dollars, 14% to euros, 13% to Chinese RMB, 10% to yen, and 7% to Indian rupees. Please keep in mind that more than half of the Foundation’s grants go to beneficiaries whose currencies are not based on the US dollar.
We are proud to say that we continue to present a low expense ratio: 0.3% for 2006, even lower than in 2005. The turnover ratio was 3.5%, a mirror image of our long-term investment style and a reflection of acquisitions as donations came in throughout the year.
Fixed Income
Overall, our bonds portfolio returned 6.3%, with the emerging markets bonds returning 10%. Our US bonds portfolio performance has finally caught up with our expectations, returning 5.8% (up from 4.3%), above our benchmark and above the Lehman Bros. Aggregate Bond Index. The United States has long dominated the world's bond market, but globalization and other factors have brought significant changes to the global bond mix. Bonds issued in the United States now account for less than half of the global bond market, and the growth of the international bond market brings a wealth of new opportunities for diversification that cannot be ignored, particularly in light of the decline in the US dollar. In other words, avoiding non-US bonds is no longer an option because it limits us to only half of the available universe of bonds. International bonds are currently around 40% of our bonds portfolio, and we will continue to pursue new opportunities while conforming to our investment guidelines.
Variable Income
Our variable income position, composed of investments in equities (directly or through funds), energy trusts, alternative energy, indices, and exchange-traded funds, returned an average of 21% in 2006. The equity investments in the United States are made through a mutual fund that returned 17.2%, above both the S&P 13.6% and the Dow Jones 16.3%. This mutual fund represents 10% of our total assets and 16% of our total equity position. We also hold an international mutual fund that returned 25.4%. Together, and weighted, these funds returned 22.4%, with an average expense ratio of 0.5%, which is included in our total portfolio expense ratio.
Other main positions in our portfolio include China and India. In China, one of our investments returned 114%. India, with only 3.5% of our total assets and 5% of our equity positions, returned 38%. Latin America returned 10% in less than two months. Some of our positions have gained more than 170% in the last two or three years, and we still believe there is growth in China and India, as well as in some other emerging economies, so our asset allocation will continue to reflect that premise.
The energy trusts that we hold in Canada, for currency diversification purposes, suffered from a change in tax laws and were down -5.7%. Unfortunately, the market is discounting a change in regulation that will happen four years from now. Because we see this investment as a hedge against a potential increase in oil, besides being in Canadian dollars, we decided to hold on to it, benefiting from the almost 10% yearly dividend payout. This position is only 4% of our variable income portfolio and 2.8% of our total portfolio. Japan had a meager 6% return in 2006. We are revisiting our investments there, which currently account for about 9% of our equity portfolio. On the other hand, our 3% position in gold was a good one. The metal was up 23% this year.
Finally, we are building a long-term position in alternative energy and water investments. These are not only interesting investments from the perspective of return, but are also extremely beneficial from the aspect of a more sustainable global economy. The arguments for investing in water and alternative energy are fairly straightforward. About two-thirds of “you” is water. You need to replace 2.5 quarts of it every day just to live, and a quart of bottled water costs more than a quart of gas at the pump. The Environmental Protection Agency projects that the United States will spend $500 billion over the coming two decades to refurbish public water supplies. And the rest of the world will need to spend vastly more. After almost five years, we continue to value the trust that Rinpoche and our donors have placed in us. Every morning we feel the challenge of carrying on the investments in a way that is responsible yet responsive to the world’s economic changes. But we find strength in seeing how much Dzongsar Khyentse Rinpoche’s activities have already benefited beings in such a short time. We would also like to thank the advisers to the Khyentse Foundation Investment Committee for their suggestions and recommendations over the past year.
For a complete look at the financial report, download the PDF of the Annual Report.
Khyentse Foundation Investment Committee
Isabel Pedrosa, Chair
Amelia Chow
Valerie Chou
Marco Noailles
Angie Tsai
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