Selection, diversification, prudence, patience and perseverance

We’ve decided to write a post for this blog explaining why a private, family-run foundation has decided to invest in Cobas’ equity funds. To give you the short answer, we’ve been doing this for 75 years…

I would like to introduce our Foundation and talk a bit about our history. I represent the Fundación Carmen Gandarias, an institution I have been lucky enough to manage for the last 24 years. Based in Bilbao, the Foundation is a private institution that funds the social initiatives of non-profit organisations working to help the disadvantaged sectors of our society.

Our revenue comes solely from the return on the Foundation’s own assets, with no external funds from public or private donors. As such, our job is basically to invest the Foundation’s assets so that their value goes up over time and so that every year they generate enough revenue for us to fulfil our goal as a foundation. We fund a lot of social institutions.

We often hear: “…I suppose that, when you invest the Foundation’s assets, you’re very conservative…” and we usually answer: “…naturally, we’re very prudent with all of our investments and that’s why we invest almost all of the Foundation’s assets in long-term equity…”

In fact, our investment policy or style was not defined by the Foundation’s current management. We’ve inherited this approach from the Gandarias family who started this in the latter part of the 20th century.

In Portugalete (Vizcaya), Alejandro Gandarias (senior) and his sisters inherited the flourishing and productive iron mining business which they operated between the 1920s and the 1950s.

As investors aiming for long-term value, the Gandarias family started buying shares in consolidated companies and new business projects and, when appropriate, joined the governing bodies of the companies they were investing in.

The Gandarias family balanced their business activities with intense philanthropic work and supported predominantly institutions helping people in need. They made major donations to the region’s Red Cross, Bilbao’s Civil Hospital, Bilbao’s Casa de Misericordia, Portugalete’s San Juan Bautista care home and the social missions of the Congregation of Merciful Love.

As fate would have it, Carmen Gandarias was the last living member of her family. In anticipation of this, Ms Gandarias created the Foundation that bears her name, to continue the social endeavours of both her and her family. On her death, she bequeathed her fortune to the Foundation. In this way, Ms Gandarias made sure that her philanthropic work was taken over by a legal vehicle that would use its assets for this social purpose.

The Foundation has donated the equivalent of 250% of Carmen Gandarias’ bequest thanks to investments

In 1994, the Foundation was bequeathed primarily financial assets consisting of stakes in listed companies, almost all of them Spanish. This is why I said before that we inherited our investment style from our founders. Over the last 24 years, we have further developed this approach and tried to improve our investment policy.

At the moment, we have investments in fixed income and several alternative and venture capital funds. However, most of our investments are still in equity with 38 direct stakes, 28 in foreign companies and 10 in Spanish businesses. On average, more than 70% of the revenue of these Spanish companies comes from outside Spain. We’ve made a concerted effort to diversify the sectors and geographic locations we invest in.

Naturally, we could have done some things better and, of course, we’ve made mistakes throughout the years; however, overall, we think it’s gone well: from 1994 to 2017 (24 years), the Foundation’s worth has gone up by almost 500% (489%). Also, we have donated the equivalent of 250% of the assets bequeathed by our founder. This means that 2.5 times the initial bequest has been given directly to institutions that help people in need.

We’re not better or smarter managers than other people. We simply followed the investment principles we have assimilated and that match the “value” management style: good investment selection process, diversification, patience and perseverance in times of volatility and dips; avoiding investment fads; selling assets when they reach their full value without getting too attached to investments, etc.

There is only one methodological aspect that distinguishes us from Cobas: generally we look for investments with explicit returns that will enable us to generate the revenue to fulfil our goal as a Foundation. And Cobas does not offer a fund with a dividend option, they’re all cumulative. Since we need to respect the balance between asset revaluation and portfolio returns, we’ve opted for growth over dividends in our investments with Cobas.

To conclude, we would like to share a brief reflection on philanthropic styles. Ms Gandarias’ legacy is an example of how assets that have been appropriately invested can help a lot of people in the long run. When you look at philanthropy, you should look at the long-term potential inherent in donating the revenue from assets while the capital invested keeps growing.

There aren’t many private, asset-based foundations in Spain but this type of philanthropy is very common in other countries, especially the USA.

The Argentine author Andrés Rivera said: “I’m convinced that, no matter how good it is, no book can change the world. But I have to write.” We’re also convinced that we’re not going to change the world but we know that with hard work, passion and enthusiasm, we can make it a slightly better place.