Cleveland Foundation fund taps success of NE Ohio companies crushing the S&P 500

CLEVELAND, Ohio – Some of Greater Cleveland’s major companies, like Eaton, Parker Hannifin and Progressive, have been blowing away key stock indexes. So, why not invest locally – especially if it means giving back to the community?

That’s exactly the idea behind an investment option created by the charitable Cleveland Foundation, designed for both its own assets and donors looking to invest at least $10,000 for philanthropic purposes.

When funds are set aside for long-term giving, beating the market translates to more grant money for years to come. And history suggests that’s possible, right here in Northeast Ohio.

Launched in October, the Impact Cleveland Investment Pool is what the Cleveland Foundation calls the first place-based investment pool of its kind in the country.

Eighty percent of the fund is evenly split among 21 major companies headquartered or with significant operations in Northeast Ohio, including Eaton and Signet Jewelers. The remaining portion is allocated to three private funds focused on Ohio investments.

“This has allowed donors to invest in Cleveland,” said Rosanne Potter, chief financial officer for the Cleveland Foundation.

But that alone, she said, wouldn’t make for a wise investment.

The idea came to her last year during a Greater Cleveland Partnership presentation showing how Northeast Ohio companies were outperforming the S&P 500. She quickly pitched the concept to Tony Gattuso, the foundation’s vice president of finance and treasurer.

“I took a picture of it and sent it to Tony, and said, ‘Tony, this is our next pool,’” Potter recalled.

Under the GCP’s model, $100 invested in the grouping of companies in 2010 would have grown to $946 by the end of September. But the same $100 in the S&P 500 would have risen to just $686. This was based on weighting investments – with more set aside for the larger companies.

The Cleveland Foundation tweaked the idea. They used 21 companies regionally valued at more than $1 billion each, and they set up the pool to invest in them equally. Many are household names, like Sherwin-Williams, Goodyear and KeyBank.

These companies, together, nearly doubled the return of the S&P 500 from January 2007 through this past January, Cleveland Foundation research found. Using 100 as a starting point for each, the index of 21 Cleveland-area companies grew to 876, versus 476 for the S&P 500 Index.

Why?

Cerity Partners practice leader Bob Smith, who helped develop the Cleveland index for the GCP and has been tracking Cleveland stocks this way off and on for decades, said many Cleveland companies are at or near tops in their fields when it comes to developing profitable, leading-edge products.

“We’ve got some great companies in Northeast Ohio — Eaton, Parker, Progressive and Sherwin-Williams. They are leaders in their industries,” Smith said. “Sherwin-Williams paint products are the most innovative the world.”

He said this performance of late is different than ahead of the dot-com bubble around 2000 and during previous recessions, when Cleveland companies tended to lag.

In fact, during just the last five years – while the S&P 500 is up 94% — Eaton’s stock price is up 207%, Progressive’s 248% and Parker Hannifin’s 285%, just to use three examples.

The Cleveland Foundation set aside $30 million to start the fund in October and has added $13 million from interested donors.

“A lot of our donors wanted to jump into it,” Potter said. “This has allowed donors to invest in Cleveland.”

In addition to the big companies, one of the private investments in the pool is the O.H.I.O. Fund, created with the goal of raising $500 million to invest in emerging Ohio companies.

It is a logical tie in, said O.H.I.O. Fund President Ray Leach: “Our motivation is very similar. We share a lot of common goals.”

He said investing locally isn’t just a smart financial move—it also helps spotlight the opportunities right here in Ohio.

“Cleveland,” the Foundation’s Gattuso said, “sometimes has the reputation of being this old place and where nothing is going on. … This is exciting.”

The investment pool

Publicly traded companies: Applied Industrial Technologies, Avery Dennison, Avient, CBIZ, Cleveland-Cliffs, Eaton, FirstEnergy, Goodyear, J.M. Smucker, KeyBank, Lincoln Electric, Nordson, Parker, Progressive, RPM, Sherwin-Williams, Signet Jewelers, Sotera Health, Steris, Timken, TransDigm Group.

Private investment funds: The O.H.I.O Fund, JumpStart Ventures and ScaleCo Capital.

Rich Exner covers regional development and transportation for cleveland.com.