22/02/2021 - 10:00

Reality check for research foundations

22/02/2021 - 10:00

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The Royal Perth Hospital Medical Research Foundation is one of WA’s largest philanthropic foundations; however, it’s not as large as it used to be, and therein lies a story.

Reality check for research foundations
RPH Foundation board members John Palermo (left) and Lyn Beazley have been joined recently by interim chief executive Amanda Cox. Photo: David Henry

Balancing commercial and philanthropic goals has become more challenging for some foundations in WA.

The Royal Perth Hospital Medical Research Foundation is one of Western Australia’s largest philanthropic foundations, with total assets of more than $65 million.

However, it’s not as large as it used to be, and therein lies a story.

The RPH foundation has faced multiple challenges in recent years, some unique to its own circumstances and others shared by its peers.

It is one of more than a dozen long-running philanthropic foundations in WA that specialise in funding medical research, and which collectively have total assets in excess of $250 million.

As well as the RPH foundation, others include the Raine Medical Research Foundation, the Perth Children's Hospital Foundation, and the Channel 7 Telethon Trust.

While some of these foundations have big annual fundraising programs, most rely on their investment income to fund research grants.

The sharp stock market downturn in the first half of 2020 meant nearly all of these foundations took a financial hit.

The RPH foundation took a bigger hit than most, with the value of its investment portfolio falling by 12 per cent (see more below). That was on top of property write-downs and investment losses in the 2019 financial year.

The result was a fall in the RPH foundation’s net assets, or equity, from $74 million in June 2018 to $65 million in June 2020.

That downturn comes at an awkward time for the foundation, which needs to fund major upgrades of its office and laboratory facilities next door to Royal Perth Hospital.

Taking on these challenges is newly recruited interim chief executive Amanda Cox, who has opted for a major career change.

Ms Cox spent the past 15 years with the West Coast Eagles, where she was chief financial officer and general manager of finance, people and business operations.

RPH foundation deputy chair John Palermo, who also owns an accounting practice, said that skill set was ideal. “Having someone with a finance background is definitely a good thing,” he said.

Mr Palermo is positive about the foundation’s prospects and excited about new growth opportunities. Like other foundations, the board has recognised the importance of protecting its ‘corpus’, or capital base.

“The board took the view to protect the corpus at all costs,” Mr Palermo told Business News.

“The earnings off the corpus will generate the funds that we need to maintain the building, support the researchers and give the grants.

“That’s the business model.”

The RPH foundation earned nearly $4.3 million last financial year from investment income, mostly in the form of dividends and rent.

It also received $917,000 from donations and bequests, though Mr Palermo said that income source was highly variable year to year. While its investment income has been consistent over the years, the value of its assets has fluctuated widely.

Most notably, it had $5 million of unrealised investment losses last year, equating to a 12.2 per cent write-down.

It was not alone in suffering losses of this kind. The Perth Children’s Hospital Foundation and the Cancer Research Trust both incurred about $2 million of unrealised investment losses.

The same applied to some of WA’s biggest charities. The Telethon Kids Institute has total assets of $174 million, with nearly half its money held in various investments.

It incurred unrealised losses of $6.6 million over the four months to April 30, equating to an 8.5 per cent loss.

Similarly, the Cancer Council had a $1.8 million unrealised loss on its financial assets, which were worth $28.3 million as at June 30 last year.

Mr Palermo said the RPH foundation’s investments were in ASX 100 shares, which have mostly bounced back from last year’s downturn.

“You don’t panic,” he said.

“I’ve seen other foundations, when the GFC hit, they panicked and sold out and then you’re trying to rebuild from ground zero.

“We took a long-term view.”

The foundation has also invested in property syndicates managed by Primewest and Ascot Capital and owns a building in Morley that is leased to a medical practice and generating good returns.

As well as the investment writedowns in FY20, the foundation’s balance sheet took a hit from a write-down in the value of its Murray Street property in FY19.

The property, which houses its laboratory, had been carried at cost (about $21 million), but as part of the 2019 audit was professionally valued.

“That came in at $13 million and that’s basically land value because we don’t have commercial leases in there,” Mr Palermo said.

(This was partly offset by an upward revaluation of its Morley property.)

Mr Palermo said the board considered all options for the Murray Street building, which traditionally accommodated researchers from the University of Western Australia and Royal Perth Hospital.

“We put all options on the table a couple of years ago and said, ‘Do we sell the building and rent somewhere else, do we just become a funding body, money in and money out’? That was seriously looked at.

“The overwhelming response was to keep the building; it represents us, that’s our brand, we’re part of Royal Perth Hospital and they need a research facility in the city.”

Foundation chair Lyn Beazley, who was formerly WA’s chief scientist, said the Murray Street facility provided a major point of difference.

“Being next to the hospital is a real asset,” Professor Beazley said.

“If we moved off site, we’d lose the strategic advantage we have and the feeling that a really good tertiary hospital has great research happening in it.

“This is the real edge we have.”

Mr Palermo said the foundation had become more commercial in the way it managed the building.

UWA remains its main tenant, but it has people from the Harry Perkins Institute of Medical Research, Curtin University, Edith Cowan University and the University of Notre Dame, some on commercial terms.

The foundation has also signed up its first commercial tenant: Melbourne-based genomic services organisation AGRF.

“The board made a decision to try and squeeze as much yield out of the building as possible because it is expensive to run,” Mr Palermo said.

“Although it is viewed as research, we want to get a commercial return from it.

“Slowly we are converting it to a better-yielding asset, and that’s part of the reason we are upgrading the facilities, to make it attractive to get commercial tenants.

“We’re not going over the top, trying to build another Perkins, we’re just to maintain what we’ve got.”

The foundation spends about $1 million a year maintaining the building and plans to spend about $5 million on the upgrade.

It has struck an agreement with UWA to contribute $1.5 million to the upgrade.

The foundation also plans to invest in Royal Perth Hospital’s Health in a Virtual Environment (HIVE) service.

Launched by Health Minister Roger Cook last December, the service involves remote monitoring of patients at Royal Perth and Armadale hospitals.

Mr Cook said the $22 million service would use digital technologies to deliver safe and more efficient care.

He added it would provide opportunities for research involving artificial intelligence and data analytics.

 Professor Beazley is enthusiastic about this opportunity.

“If we can be part of that, and the board is very keen to do so, then you are enriching the whole hospital,” she said.

“It’s not going to be a small investment but if it comes off, it will be a world leader.”

Research grants

While the foundation has big investment plans, the amount of money it distributes for research grants is low relative to other foundations.

Its research grants peaked at $2.8 million in 2016 but fell to $1.7 million last year.

Other foundations with a much smaller asset base, such as the Raine foundation and Cancer Research Trust, distributed more last financial year (see table).

Ms Cox said the provision of laboratory space meant the RPH foundation delivered more value to its grant recipients.

“It helps if researchers hit the ground running,” she said.

“They can walk into an operating facility when they receive their grant, rather than spending three to six months building the team and finding a lab.”

Professor Beazley added that the foundation delivered support in different ways.

“We don’t just give a grant and say, ‘That’s it, off you go’,” she said.

“We mentor them, we teach them how to communicate, provide career support.”

The foundation employs a research manager and three full time biostatisticians to mentor and advise researchers.

“We’re not a [research] institute but we give that level of support to the people that we’re funding,” Professor Beazley said.

Raine foundation

The Raine Medical Research Foundation provides the best example in WA of a philanthropic foundation protecting its corpus while delivering on its core purpose.

The foundation was established in 1957 after Perth widow Mary Raine bequeathed her property empire, valued at £1 million, to UWA for the purpose of funding medical research. Since then, the foundation has distributed close to $50 million to more than 500 recipients through grants, fellowships, awards and scholarships.

After all these distributions, the foundation has total assets of $46.4 million, according to its latest annual report for the year to December 2019.

In addition, it manages about $8 million for partner organisations, including the Brightspark Foundation and the Healy Foundation.

These organisations aligned with Raine to leverage its knowledge and expertise in allocating medical research grants.

With one full-time staff member, Raine has a robust review process for grant applications.

This includes a local advisory panel to short-list applications, followed by an independent review by at least two experts in the relevant field.

Raine contacts more than 200 national and international experts each year before appointing assessors.

“These processes have been developed over a long time to be very robust,” Raine director Amanda Cleaver said.

“That’s why other organisations partner with us.”

The foundation distributed $2.4 million in 2019 after the board decided to increase its total funding pool.

The research grants are funded from two main sources: income from Raine’s investments, and contributions from partners and donors.

The foundation had an extraordinarily good year in 2019 with investment income of $6.7 million, up from $872,000 in the prior year.

Dr Cleaver said the foundation typically distributed 5 per cent of its corpus each year, with surplus funds from the good years reinvested to grow the corpus and cover low returns in other years.

Its partners and donors included the WA Department of Health, UWA, the Jon and Caro Stewart Family Foundation and property group Charter Hall.

PCH Foundation

The Perth Children’s Hospital Foundation has a different business model.

It has a large asset base – currently about $41 million, generating substantial investment income – but also has a big focus on fundraising, led by head of fundraising Heiko Plange, to support its planned growth.

Heiko Plange (left) and Carrick Robinson at Perth Children's Hospital. Photo: Gabriel Oliveira

The foundation has distributed about $83 million over the past 24 years. Its activities have greatly expanded in recent years, with the foundation distributing $8.5 million last year.

The grants last year were for a wide range of purposes, including support for clinicians, medical research, specialist equipment purchases and training programs.

In addition to its annual grants, the foundation has more than $25 million committed over the next five years.

This includes a partnership with the Telethon Kids Institute, to provide $10 million to the recently opened Wal-yan Respiratory Research Centre.

On top of that, the foundation has an infrastructure program.

It has committed $6.3 million to fund the construction of a pedestrian bridge that will connect the hospital precinct with Kings Park.

It is also backing the planned construction of a $25 million hospice in Swanbourne to provide specialist respite and palliative care for children.

Chief executive Carrick Robinson said the foundation took a long-term view.

“Our financial commitment is to continue to operate for a long time to come and to continue making a significant impact in the community,” he said.

“As such, we plan for the future, not just for the year.”

The foundation had operating revenue last year of $10.8 million, most of which came from donations and bequests.

It also had $1.1 million of investment income.

Mr Robinson said the foundation had a deliberate policy that earnings from its investment portfolio were used to fund administration costs, so that donations went to the beneficiaries.

He added that the foundation’s asset portfolio operated to support its future grant commitments.

“We see it as prudent financial management to also have a small buffer to see us through difficult economic times, which is more important now than ever to weather the uncertain economic consequences of COVID,” Mr Robinson said.

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