Mastercard Foundation launches Toronto-based asset manager to oversee $47-billion in investments

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One of the world’s largest private charitable organizations, the Mastercard Foundation, is creating a separate Toronto-based asset manager from scratch to modernize the way it invests its US$47-billion portfolio – a vast pool of wealth built from owning a single stock.

Mastercard Foundation Asset Management (MFAM) is on track to rapidly become one of the largest startups in the investment world. Created in January, it has its own management team and board of directors, and it is starting to recruit a small investment team that will be tasked with professionalizing the way the Mastercard Foundation manages its huge financial resources.

It is led by chief investment officer John Barker, who joined in January and has deep experience investing for well-funded non-profits, including as CIO at Mass General Brigham, a Boston-based health care non-profit, and as a managing director at the company that invests Harvard University’s endowment fund.

The launch of MFAM is a function of the rapid growth in the Mastercard Foundation’s resources, which have ballooned far beyond what its founders could have envisioned. The foundation was created in Toronto in 2006 by U.S.-based credit card giant Mastercard Inc. MA-N, which gave a gift of company stock when it went public on the New York Stock Exchange.

At the time, Mastercard sold shares to investors at US$39 a piece, which valued the company at US$5.3-billion. Today, after a stock split in 2014, the company’s market capitalization is US$410-billion and its shares trade at US$440 each, giving day-one investors that held on to the shares a return of more than 9,700 per cent.

As a major shareholder, the Mastercard Foundation has seen the value of its one-stock portfolio skyrocket. It distributed about US$1.4-billion last year and aims to spend between US$1.5-billion and US$1.8-billion annually by drawing on a stream of investment income. That money funds programs in 33 countries that are primarily focused on access to education and financial inclusion in Africa, but also include support for Indigenous youth in Canada.

The Mastercard Foundation Scholars Program has helped 45,000 young people in Africa pursue high school or postsecondary education, “and we are shooting up to 100,000,” said chief executive officer Reeta Roy, in an interview. And its Young Africa Works strategy has a goal to help 30 million African youth, especially young women, secure employment by 2030.

Until this year, the foundation’s sole source of funding was its block of Mastercard shares, which pay dividends. It was restricted from selling its stake in the credit-card company, except in small amounts as needed to pay disbursements to charitable programs and fund its operations.

Those restrictions were set to expire in 2027. But as the foundation’s financial clout increased, and its board made plans for its future, the need to take a modern investment approach – spreading its risks by buying a global mix of public and private assets, following a model embraced by other large institutional investors such as pension funds, endowments and family offices – seemed more urgent.

Last summer, the foundation – with backing from Mastercard Inc. – filed an application to modify the terms that govern its founding gift, allowing it to create a more sophisticated investment structure to support its mission.

“As the asset was growing substantially, the board started to think about the long term and to plan. And it takes time to put boots on the ground in terms of building a world-class asset management diversification strategy, which is one of the reasons why they wanted to start early and get a head start,” Ms. Roy said. “They could also see how important this would be to enabling the foundation to make those kinds of even longer-term commitments and even larger bets.”

In agreement with Mastercard, MFAM will gradually sell about 90 per cent of the foundation’s shares in the company over a seven-year period, taking care not to flood the market with stock in a way that would risk driving down the share price. Those share sales have already started, and over time the proceeds will be reinvested in a globally diversified portfolio, keeping a meaningful stake in Mastercard.

Mr. Barker is in the course of recruiting an investment team of 10 to 15 people, which he plans to keep “quite lean,” he said. The mix of assets that MFAM aims to own over time will be weighted toward equities, and it will initially rely on third-party fund managers to make investments. Over time, MFAM plans to invest in commingled funds, to co-invest in private assets and to make some direct investments.

“This is one of the largest greenfield startups of its kind in the world – and probably ever,” Mr. Barker said. “It’s highly exciting and a highly desirable role to be in.”