“Compound interest is the eighth wonder of the world” – Albert Einstein
From an original bequest of £275,000 ($550,000), $150m income has been generated and a $110m corpus invested for the future.
On her death in 1951, the late Helen Macpherson Schutt (née Smith) left a bequest of £275,000 ($550,000) for the establishment of a charitable trust in perpetuity to benefit all Victorians.
Remarkably, the invested assets of HMSTrust’s corpus have grown from the initial benefaction of $550,000 in 1951 to $110m today. This exceptional investment performance did not happen by chance.
Firstly, Helen wisely instructed her trustees to re-invest two thirds of the income generated over the first 21 years of the Trust. One of the features of compounding is the substantial benefit gained from strong growth early in the life of a fund. This income from the first 21 years of the Trust now accounts for $53m (or 48%) of the $110m corpus. In 2009 the Supreme Court of Victoria approved an Administrative Scheme which again gave the Trustees limited power to accumulate income to corpus. This power of accumulation activated by the Trustees from FY10 now accounts for $6m (or 6%) of the $110m corpus.
Secondly, the Trustees made a decision to invest primarily in growth assets (such as Australian equities) which have generated good capital growth (7.2% compound annual growth rate) over the last 66 years. If the $550,000 had only matched inflation it would be worth as little as $10m today.
Finally, but very importantly, HMSTrust has invested astutely in the better performing companies. If the $550,000 had simply matched the growth of the All Ordinaries Index over the 66 years the corpus would only be worth $33m instead of the $51m it is today.
At the same time the corpus has generated income of $150m (or $235m adjusted for inflation) over the 66 years which has been allocated as follows: $117m ($177m) in approved grants, operating expenses of $22m ($32m), transfers to corpus of $7m ($22m) with the remaining $4m available for future granting.
It is truly a commendable achievement that the original $550,000 bequest 66 years ago is now a $110m corpus which has generated $150m of income which has been used to benefit the state of Victoria.
The impact of this lasting legacy from Helen to the people of Victoria is exemplified in a summary of capital growth over the now 66 years of HMSTrust’s operations:
|YEAR ENDED JUNE||MARKET VALUE|
|* Figure represents book value (market value unknown)|