Posted on July 29, 2002

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Volatile Stock Market Pushes Charitable Foundations and Trusts to Reconsider Investment Strategies

The plunging stock market and recent corporate scandals are forcing many charitable foundations and trusts, among them the Milton Hershey School Trust and the David and Lucile Packard Foundation, to rethink their investment strategies and diversify their assets, the Wall Street Journal reports.

Recently, the Hershey School Trust, which owns 31.4 percent of the Hershey Foods Co.'s outstanding common shares and controls roughly 76 percent of its voting stock, announced that it was exploring the sale of the nation's largest candy and chocolate maker. The sale, which could earn more than $10 billion for the Trust, had previously been considered unlikely because of the Trust's loyalty to its mission and its hometown of Hershey, Pennsylvania. More than a year ago, however, the Trust became concerned about the volatile stock market and its sizable stake in the company and began to reduce its position, which now accounts for roughly 50 percent of the Trust's assets, down from 80 percent.

Several state attorneys general, who regulate private charitable trusts, are encouraging trusts to diversify their portfolios in order to safeguard their interests. According to the Journal, people familiar with the situation say that while Pennsylvania attorney general Mike Fisher's office has urged the Trust to diversify, it has stopped short of advocating the sale of the Trust's stake in the company. Mark Pacella, the chief deputy attorney general for Pennsylvania, said that in general, "there has been no new push on our part to force diversification as a policy matter." But Pacella added that current market conditions have underscored "the age-old proposition that diversification is almost always a hallmark of prudent portfolio management."

The Los Altos, California-based Packard Foundation is another foundation considering diversification of its assets. The foundation, whose endowment is comprised of stock holdings in just two companies, the Hewlett-Packard Co. and its spinoff, Agilent Technologies Inc., decided in June to drop its policy against diversification, although it has yet to create a new investment plan. According to recent reports, the foundation has seen the value of its endowment fall from a high of $18 billion in early 2000 to $4.8 billion as of June 30.

Branch, Shelly. Ellison, Sarah. Fairclough, Gordon. “Hershey Foods Is Considering A Plan to Put Itself Up for Sale.” Wall Street Journal 7/25/02.

Primary Subject: Philanthropy and Voluntarism
Location(s): Hershey, Pennsylvania

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