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Sustainable Philanthropy Case Study
Name: The David and Lucile Packard Foundation
Type: Private Foundation
Size: $7.8 bn (2019)
Year of Establishment: 1964
Description:
The David and Lucile Packard Foundation is a charitable private foundation that was formed in 1964 as an extension of David Packard, the co-founder of Hewlett-Packard, and his wife Lucile Salter Packard’s charitable activities. The Foundation’s goals are to improve the lives of children, enable creative pursuit of science, advance reproductive health, and conserve and restore earth’s natural systems.
History:
David Packard, the co-founder of Hewlett-Packard, and his wife Lucile Salter Packard met on the Stanford campus. Lucile would come to work closely with her husband’s company, serving as secretary, accountant, and personnel manager. During her free time, she donated her time to volunteer projects and eventually became the chair of the board of the Children’s Health Council. The Packard family’s passion for philanthropy was formalized in 1964 with the creation of the Foundation. The Foundation awarded almost $11,000 in the form of 20 grants in its first year, and would award over $100,000 in grants in 1971. It was in this year (1971), that the Foundation defined its five major areas of grantmaking: Conservation and Ecology, Cultural, Education, Health, and Youth and Ministry.
In 1975, the Foundation opened its first official office and hired its first part time staff (full-time staff were not hired until the end of 1976). The Foundation quickly grew in subsequent years, making grants and helping to set up organizations that would define its current path. In 1982, the Foundation started its first community foundation, setting up the precedent of community foundation support that continues today. In 1983, David Packard started the Management Assistance program, which helped non-profit organizations achieve their missions by offering support and assistance on the fundamentals of nonprofit success. This program continues today, but has been renamed the Organizational Effectiveness program. Perhaps the most public aspect of the Foundation, the Monterey Bay Aquarium and its associated research institute, was opened in 1984.
Family Involvement:
David Packard and his wife Lucille Salter Packard founded the Foundation with two other board members—their son and an attorney, Nathan Finch with the intention of quickly adding on additional board members, especially family members as the Foundation grew. David and Lucille Packard had four children—David Woodley Packard, Nancy Packard Burnett, Julie E. Packard, and Susan Packard Orr. All four children have served on the board of the Foundation; however, David W. Packard left the Foundation in 1999 to work on his own foundation, the Packard Humanities Institute.
Currently, seven of the sixteen board members are related to the Packard family. Three of David and Lucille Packard’s children still act in leadership roles on the board of trustees—Susan Packard Orr serves as Chairman while Julie E. Packard and Nancy Packard Burnett serves as Vice Chairmen. Four of David and Lucille Packard’s grandchildren also serve on the board—Jason K. Burnett, David Orr, Katherine Orr, and Louise Stephens. Because of the founder’s intention for the Packard family to remain highly involved with the Foundation, a high level of family involvement is expected to continue.
Mission:
The mission of the Packard Foundation is to improve the lives of children, families, and communities while restoring and protecting our planet. It supports leaders and institutions that are working on issues that David and Lucile Packard cared about most. Grants are given to the following five categories—Conservation and Ecology, Culture, Education, Health, and Youth and Ministry.
The Foundation aims to be a long-term, but not necessarily a perpetual institution. Its current intention is to exist as a strong foundation through at least 2060 and this horizon is kept in mind as the Foundation structures its investment goals and policy. The long-term spending rate of the Foundation is intended to be between 5.2 and 5.5% of annual average assets.
The Foundation’s investment objective is to earn above benchmark investment returns and to grow the portfolio in order to provide ongoing funds for current and future grantees. Its portfolio has evolved since its inception; today, the endowment is managed externally by a select group of talented investment partners who have investment discretion.
Investment Program:
Investment Philosophy
The investment goal of the Packard Foundation is to maintain and grow its spending power in real inflation adjusted terms with risk at a level appropriate to the Packard Foundation’s programmatic spending and objectives. The Packard Foundation diversifies its investments across various financial instruments and asset categories and also implements different investment strategies. Other than founder’s stock (Hewlett-Packard, Agilent, or Keysight common stock), all financial assets are managed by a select group of external investment management firms. The Foundation also has investments allocated to partnerships, limited liability companies, and commingled funds.
The Foundation holds investments in developed and emerging market securities and also invests in marketable alternatives that consist of long/short, opportunistic, and special situation investment management firms. Investments are also made in more illiquid assets such as limited partnerships, private equity, and real assets. Finally, the Foundation also holds fixed asset securities that are primarily made up of investment grade debt instruments issued by the US government, US corporations, Treasuries, and mortgage-backed securities.
Performance
The Packard Foundation has had relatively moderate performance from 2007 to 2008, with the only negative returns occurring in 2008. The annualized return from 2007 to 2019 is very low at 2.0% (lower than the required 5% charitable donation requirement). However, if performance is only viewed since after 2008 from the end of 2008 to 2019, annualized returns are 5.4%. The Foundation took a large hit in the 2008 recession, losing almost a quarter of total assets while still donating $383mm that year. A graph depicting year to year returns on top of total assets is shown below.
Interestingly, both Hewlett and Packard Foundations followed similar paths of the investment performance while Packard slightly outperformed Hewlett.
Asset Allocation
Asset allocations have changed dramatically over the history of the Packard Foundation. When David Packard died in 1996, he left the bulk of his estate to the Foundation in the form of Hewlett-Packard company stock. When HP spun off its measurements and components businesses in 1999, the Foundation held a two-stock portfolio, but this changed significantly in 2003 after the volatility of the technology boom and bust. The Board of Trustees authorized the diversification of the portfolio and moved towards a liquid portfolio of stock index funds and bonds. The Foundation moved into other public equities, cash, and fixed income assets, with only 13.9% of assets in founder’s stock by the end of 2007 when the Foundation hired its first Chief Investment Officer, John Moehling, to recruit an investment team and to build an institutional-quality portfolio.
Asset allocation again changed dramatically in 2008 after John Moehling was appointed as the Foundation’s first Chief Investment Officer and tasked to recruit an investment team and build an institutional-quality portfolio in November of 2007. Moehling previously was the director of Hedge Funds and Fixed Income at the University of Chicago Office of Investments. After his appointment, the Foundation’s assets flowed out of cash and public equities and moved into private equity, real assets, and absolute return/marketable alternative assets. Notably, all investment assets except for founder’s assets are managed out of house by selected external managers that have investment discretion. Now, Kimberly Sargent work for the Foundation as Chief Investment Officer. Prior to joining the Packard Foundation in February 2008, Kimberly was a consultant with McKinsey & Company’s San Francisco office, and prior to that a senior analyst at the Yale Investments Office. A comparison between asset allocations from the end of 2007 to the end of 2019 is shown below.
Although Packard and Hewlett Foundations had similar returns since 2007, their portfolios back then look very different. By 2007, Hewlett had completely divesting H&P shares and had a fully diversified portfolio. In contrast, Packard had no allocation to alternative assets.
Today, their allocations are amusingly similar although they would look different in detail. (asset classification we used here is very broad).
Manager Selection
The Packard Foundation holds the belief that great investments start with great people. Its strategy is to build strong partnerships with a select group of talented investment partners around the world that have passion, integrity and strong investment judgement. The Foundation looks for long-term investors with high levels of patience and a long-term horizon. The Foundation also favors value, deep, bottom-up fundamental researchers who are opportunistic and flexible. The Foundation believes that the best investors build conviction based on high-quality research that allows for concentrated positions within a portfolio and limited turnover. The Foundation prefers to work with managers that are independently owned, focused on investment excellence over asset size growth and product proliferation, and who are meaningful investors in their own funds.