Ford Foundation Taps One of Its Veteran Managers to Oversee Investments

As the new chief investment officer at the Ford Foundation, Eric W. Doppstadt faces a challenging economic environment.

Like almost all foundations, Ford, the second wealthiest grant maker in America, experienced a sharp decline in its endowment during the last 12 months. Since September 2008, Ford’s assets have dropped $1.5-billion to $9.6-billion.

The tough financial times have forced the organization, which maintains its headquarters in New York, to close two offices abroad, eliminate 30 foreign staff positions, and offer voluntary buyouts, which 60 of the foundation’s 550 employees accepted.

While the market has shown signs of recovery in recent months, Mr. Doppstadt says he and his investment team of 13 people are preparing for a variety of economic conditions, including a rise in inflation. He also says that the New York foundation will be cautious about so-called alternative investments, which include real estate, hedge funds, and venture capital. Such investments have caused liquidity problems for some foundations during the downturn.

Ford and foundations like it “have the most fascinating, but the most challenging, investment objective I could think of,” he says. They rely on investments to generate income, are required by law to spend part of their endowment every year, and plan to operate indefinitely.

“We’re like an individual who has a perpetual life expectancy and a lot of expenses,” he notes. “And we’re unemployed.”

Mr. Doppstadt, whose annual salary is $600,000, has worked for Ford for almost 20 years in various positions on its investment staff. Luis Ubiñas, Ford’s chief executive, says that Mr. Doppstadt’s familiarity with the organization’s portfolio made him the ideal candidate during the bad economy.

“We are immensely fortunate to have Eric’s considerable expertise and skill at a time when the economy demands so much of us — both in terms of our grant making and our investment strategy,” Mr. Ubiñas says. “Eric’s performance in managing our private-equity, hedge-fund, and venture-capital portfolios over the last decade has been exceptional.”

Mr. Doppstadt is a graduate of the University of Chicago, where he received a bachelor’s degree in social science, and he earned his law degree at the New York University Law School. He is replacing Linda B. Strumpf, who was the group’s chief investment manager for 16 years and is retiring.

In an interview with The Chronicle, Mr. Doppstadt discusses his investment approach and his response to those who argue that foundations should be required to give more than the 5 percent federal law demands they award to charity each year.

What has it been like to be on the stock-market roller-coaster ride during the previous 12 months?

Every organization has gone through a trying time, and we’re no exception. We’ve obviously absorbed declines in our asset value and those can be very difficult for an institution with no new source of inflow.

We are in a fortunate position, though, in that we have a very liquid portfolio. While we have a diversified portfolio that includes some investments in some alternative assets, the overwhelming number of our investments at this point in time are in public stocks, bonds, and cash. So that has given us a lot of flexibility and saved us from having to worry about whether we can come up with enough cash to continue to fund our spending needs, which has been a worry that some institutions have had to wrestle with over the course of the last year.

What potential economic problems do you foresee?

There are clearly difficulties in the economy that are likely to take some time to work out, both within the U.S. and globally. There also are substantial concerns about continued deflation in the near term in the U.S. economy, which have been a major factor in some of the government interventions we’ve seen in the U.S., Europe, and Asia.

But in the medium to long term there’s also substantial concern about the potential inflationary impact of some of these programs. That is an environment that very few institutions have had to even think about for the last 25 years. So a lot of people’s portfolios have quite logically been positioned in ways that aren’t taking account of inflation risk in a major way.

How are foundations different from other investors?

Private foundations like ours, who don’t have a new inflow of funds, have the most fascinating, but the most challenging, investment objective I could think of. Because we want to exist in perpetuity, we don’t have any way of augmenting our resources other than what we have today. And we spend a substantial amount of money every year to fund our programs and our other operating needs. If you add all that together it’s extremely difficult to preserve the value of your assets if you’re never adding to them and you’re spending a fair amount. Whether you’re a retired person or a university or a foundation, foundations have it toughest of all.

How do you respond to people who argue that foundations could be required to spend more than 5 percent of their assets on charitable efforts annually and still exist indefinitely?

That is a bull-market argument. Even a 5-percent spending rate is enormously challenging. If you’re a foundation that wants to exist in perpetuity, your investment target really becomes 5 percent, plus whatever your costs of operation and investment are that you can’t count toward the 5 percent as a private foundation, plus the rate of inflation. So let’s say your costs are 30 basis points and inflation is 4 percent, that means your real target is 9.3 percent. If you think about it, there aren’t very many assets out there that can be counted on to deliver a 9.3-percent return over long periods of time.

Since September 2008, how have you changed your asset allocation?

In general, we have not made any dramatic change in our asset allocation. Partially because you don’t want to be changing your asset allocation necessarily in the midst of a big market dislocation, unless your investment objectives have changed. And partially because I wanted to take a fresh look at our overall strategy and how we want to be positioned. Together with our president and our investment committee, we are engaged in a process of really thinking about strategy in a new way.