A Remarkable Growth Story

“Compound interest is the eighth wonder of the world” – Albert Einstein

 

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 Victorian charities.

From that original bequest, $171m of income has been generated with $133m distributed to Victorian charities while the corpus has grown to its current $140m.

This remarkable outcome reflects an annual compound return of 13.2% p.a. over 70 years (1951-2021), split into capital growth of 7.1% p.a. and an average income return of 6.1% p.a. These returns compare very favorably to inflation which averaged 4.4% p.a. over the 70-year period. Expressed another way, the return achieved by the Trust over 70 years has exceeded inflation by 8.8%.

This exceptional investment performance did not happen by chance.

Firstly, Helen 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 $67m (or 48%) of the $140m 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 $9m (or 7%) of the $140m corpus.

Secondly, the Trustees made a decision to invest primarily in growth assets (such as Australian equities) which have generated good capital gains (7.1% compound annual growth rate) over the last 70 years. If the $550,000 had only matched inflation over the 70 years it would be worth as little as $11m today. If the $550,000 had simply matched the growth of the All Ordinaries Index over the 70 years, the original bequest would only be worth $43m instead of the $64m it is today.

At the same time the corpus has generated income of $171m (or $273m adjusted for inflation) over the 70 years which has been allocated as follows: $133m ($206m) in approved grants, operating expenses of $27m ($39m), transfers to corpus of $8m ($25m) with the remaining $3m available for future granting.

It is a commendable achievement that the original $550,000 bequest 70 years ago is now a $140m corpus which has generated $171m of income, 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 70 years of HMSTrust’s operations:

YEAR ENDED JUNE MARKET VALUE
$ m’s
1952  0.55*
1965 1.6*
1975 3.2
1985 10.9
1995 29.8
2000 49.6
2005 78.3
2010 83.9
2015 104.5
2016 99.6
2017 109.6
2018 116.5
2019 126.1
2020 117.7
2021 140.0
* Figure represents book value (market value unknown)