The Foundation’s own funds
In 1991, FNP received PLN 95m as its founding fund (a portion of the Central Fund for Development of Science and Technology, which was liquidated in 1990). Since that time, the Foundation has raised funds for its statutory activity as well as to maintain the value of its funds primarily from operations on the financial market, i.e. by investing assets in financial instruments—primarily bonds, participation units in investment funds, and shares. Through the end of 2011, the Foundation awarded over PLN 408m to science out of the funds generated in this manner.
The Foundation obtained additional funds for supporting science, of over PLN 51m, in 2003 and 2004, pursuant to the Act of 29 March 2000 Amending the Act on Commercialization of Enterprises, which provided that 2% of the proceeds from privatization of wholly owned companies of the State Treasury would be earmarked for contribution to the Foundation’s assets, but under the Act of 1 March 2002 on Changes in Organization and Functioning of Central Governmental Administrative Bodies, the recipient of 2% of the proceeds from further stages of privatization would be the State Committee for Scientific Research (KBN). Out of the funds obtained through operation of the privatization law, the Foundation established a separate fund earmarked in its entirety to financing domestic stipends for young scientists (the START programme).
Moreover, in 2003 funds in the amount of about PLN 461,400 that were unused in implementation of the Maria Skłodowska-Curie 2nd Common Fund, which served from 1987 until 2000 as the main source for financing scientific cooperation between Poland and the United States, were transferred to the Foundation and earmarked for stipends for foreign fellowships in the exact sciences. In 2004-2007 the Foundation awarded each year one additional foreign stipend out of these funds in the KOLUMB programme.
In 2008 the Foundation began to carry out programmes financed from the European Regional Development Fund under the Innovative Economy Operational Programme 2007-2013 (Measure 1.2, “Strengthening the human resources potential of science”).
In 2011 the Foundation launched the SKILLS project, financed out of funds from the Human Capital Operational Programme (Measure 4.2, “Developing staff qualifications in the R&D sector and increasing the awareness of the role of science in economic growth”).
The Foundation’s financial reports are examined each year by renowned auditing firms and published in the Annual Report, available at FNP’s offices and on its website. They are also submitted to the National Court Register and the competent ministries.
The Foundation’s investment strategy
The fundamental principles governing the Foundation’s financial strategy are aimed at achieving two goals:
- Maximizing income, which is a source of financing FNP’s statutory activity
- Maintaining the real value of the Foundation’s capital assets over the long term, i.e. protecting them against the results of inflation.
The Foundation’s statutory activity is financed primarily from income from operations on the financial market: capital investments in securities and other financial instruments such as treasury, municipal and corporate bonds, investment fund participation units, and shares in Polish and foreign companies. For many years, following a strategy of effective management of current liquidity, the Foundation has also been an active participant in the bank deposits market.
Until 2008, instances in which the Foundation made use of external sources of finances were sporadic: privatization proceeds released to FNP by the Ministry of Treasury in 2003-2004 (PLN 51.7m); unused funds from the Maria Skłodowska-Curie 2nd Common Fund released to FNP in 2003 (PLN 461,400); assignments by taxpayers of 1% of their personal income tax, since 2004; and individual donations to FNP.
In 2008 FNP became the beneficiary of key programmes from the Innovative Economy Operational Programme and ultimately will receive EUR 100m to carry out new programmes in 2008-2015. This means the ability to nearly triple FNP’s annual programme expenditures, previously financed chiefly out of its own funds.
The scope of tax exemptions given to foundations has the greatest impact on their financial situation all over the world. The practice of granting income tax exemptions to foundations is now universal. The issue of the availability of a tax exemption for capital investments of non-governmental organizations in Poland is governed by the Corporate Income Tax Act. Art. 17(1e) specifies the subject of income tax exemptions for taxpayers allocating income for statutory purposes or other purposes identified in this regulation. The Foundation makes use of these exemptions and adjusts its investment strategy accordingly.
This strategy is based on the structure of a portfolio constructed so that a minimum of 50% of the portfolio is made up of safe financial instruments—chiefly treasury bonds, treasury bills, participation units in safe investment funds, and money market instruments. A maximum of 50% of the portfolio may be made up of higher-yielding but also higher-risk instruments, such as shares and participation units or investment certificates in investment funds. The shape of the foregoing structure of the portfolio is based on an anticipated long-term rate of return which, assuming that the level of programme expenditures is maintained at about 5% of the Foundation’s own funds annually and the necessity to cover the Foundation’s operating costs, should—with the additional assumption of protection of equity—be a minimum of 8-9% per annum.
Drawing on the experience of Western foundations, FNP diversifies its portfolio, entrusting the management of a significant portion of its own financial assets to several licensed entities authorized to perform asset management services for clients.
As of the end of 2010, 85% of FNP’s financial assets were managed externally by 5 licensed entities. The Foundation also holds a portion of its assets (mainly funds derived from the privatization of wholly owned companies of the State Treasury) invested in long-term treasury bonds purchased directly for the Foundation’s account. The dynamics of the market make it necessary to constantly observe changes, compare results, and seek new, more favourable solutions for the investment activity of the Foundation. The immediate plans for changes in the financial strategy consist of including investment certificates of closed funds in FNP’s portfolio, enabling exposure to new fields of investment such as venture capital funds, emerging markets, commodities and real estate.
The selection of firms to manage the Foundation’s assets is conducted through competitive procedures, organized in accordance with the Foundation’s current investment needs and decided by the FNP Management Board. At the present time, FNP’s diversified investment portfolio is structured to take optimal advantage of the potential of global financial markets. In asset management services, the Foundation cooperates with the following firms: Credit Suisse Asset Management SA, ING Investment Management SA, Skarbiec TFI SA and Opera Kwiatkowski i Wspólnicy SKA. FNP also holds participation units in open funds belonging to Opera TFI SA and KBC TFI SA.
The chart above depicts the annual rates of return on FNP’s portfolio of financial assets managed externally in 2004–2010, against a benchmark (an index comprised 30% of the WIG index and 70% of the index for 1- to 3-year bonds).