Diversification Pays Off for Foundation Endowments

Diversification Pays Off for Foundation Endowments

Foundations created from the proceeds of a single company are finding that diversifying out of their founders' stock is often a wise investment strategy, particularly in a rocky equities market, the Philadelphia Inquirer reports.

It's a lesson that hasn't been lost on executives of the Connelly Foundation, a family foundation created in 1955 through a large gift of stock in Crown Cork & Seal Co.. The West Conshohocken-based foundation, which focuses on Catholic education and has made grants totaling more than $200 million over the years, began to sell its Crown stock in the 1990s. By the time it completed the diversification in 2000, the stock price had sunk — on concerns over the packaging manufacturer's debt and asbestos-related liabilities — from the mid-$50s to $13.13; today the stock trades in the $5 range. But while the turmoil in the equity markets has eroded the value of the foundation's endowment by more than half since 1997, Connelly treasurer and vice president of finance Lawrence T. Mangan maintains that matters could be worse. "If we had the same concentration of Crown [stock] today as in 1997, the difference would be stark."

Other foundations created primarily with the stock of one company have sought to avoid similar risks. For example, the Philadelphia-based Pew Charitable Trusts, which was created by the children of the founder of Sun Oil Co. — now Sunoco Inc. — had a quarter of its portfolio in Sun Oil stock in 1993 but divested itself of all those shares by the end of 1997. And the West Conshohocken-based Lenfest Foundation, which was set up in 2000 with about $150 million in Comcast Corp. stock, sold its stake in 2001, reinvesting about a third of the proceeds in the markets and keeping the rest in cash while weighing its investment options. Comcast's share price subsequently slumped along with the equity markets, while the foundation's endowment actually rose in value, ending 2002 at $152.1 million.

Patricia Horn. "Diversifying Endowments." Philadelphia Inquirer 04/29/2003.