Private Foundations Rebuilding Assets After Recession, Study Finds

Investment returns for private foundations returned an average of 12 percent (net of fees) in fiscal year 2012 — a significant improvement over the -0.7 percent return in FY2011, a new study from the Commonfund Institute and the Council on Foundations finds.

Based on data from a hundred and forty foundations, the study, the first fruit from a new collaboration between the two organizations, found that the highest returns, an average of 12.4 percent, were produced by foundations with assets between $101 million and $500 million, while those with assets greater than $500 million produced an average return of 11.4 percent. Looking at multiyear results, the study found that trailing three-year returns averaged 7.9 percent, compared to 10.3 percent in the 2011 study — a reflection of the strong returns in 2009 dropping out of the calculation. Trailing five-year returns averaged 1.8 percent in the latest study, compared to 1.4 percent in FY11. For the trailing ten-year period, returns averaged 7.9 percent, compared to 5.2 percent in last year's study. "After a mildly negative 2011, private foundations secured double-digit gains in 2012, restoring much-needed growth to their endowments," said Commonfund executive director John S. Griswold. "Last year's ten-year return, in the 5 percent range, was simply not high enough to sustain spending levels once inflation and investment management costs are taken into account."

Domestic equities (16.3 percent return) and international equities (17.5 percent) were the biggest contributors to the average 12 percent return in FY2012, with the latter leading all asset classes. Among other asset classes, fixed income returned 7.1 percent, alternative strategies returned 7.0 percent, and short-term securities/cash/other returned 1.0 percent, while within the broad category of alternative strategies distressed debt returned 14.7 percent, followed by an 8.0 percent gain from marketable alternative strategies (hedge funds, long/short funds, derivatives, etc.).

Foundations participating in the 2012 CCSF represent some $78.7 billion in assets. As of the end of 2012, their asset allocations were 26 percent to domestic equities (compared to 23 percent in 2011), 11 percent to fixed income (v. 13 percent), 16 percent to international equities (v. 12 percent), 42 percent to alternative strategies (v. 44 percent), and 5 percent to short-term securities, cash, and other assets (v. 8 percent).

"A study like this helps enhance our understanding of key trends in the field and of investment practices of private foundations," said Council on Foundations president and CEO Vikki Spruill. "We are encouraged to see growth in mission-related investing, and even more encouraged that giving is increasing even though the economic recovery has remained uneven."

"Study Finds Private Foundations Rebuilding Assets After Recession Declines" Commonfund Institute Press Release 09/26/2013.