Foundation investment returns surged in 2019, study finds

Foundation investment returns surged in 2019, study finds

Annual investment returns (net of fees) for private and community foundations improved significantly in 2019 after falling into negative territory in 2018, a report from the Council on Foundations and Commonfund Institute finds. 

According to the 2019 Council on Foundations–Commonfund Study of Investment of Endowments for Private and Community Foundations (68 pages, PDF), private foundations reported an average return of 17.4 percent in 2019, while community foundations reported an average return of 18.2 percent, up from -3.5 percent and -5.3 percent, respectively, in 2018. With private and community foundations of all asset sizes recording average returns of at least 16 percent in 2019, last year's performance was the strongest of the decade and the best since 2009, when private and community foundations saw average returns of 20.5 percent and 22.1 percent. In 2019, community foundations with assets under $101 million reported the highest average return, 18.5 percent, benefiting from the relatively high allocation of their endowments to U.S. equities. Private and community foundations with assets of more than $500 million, which had smaller allocations to U.S. equities and the largest allocation to alternative investment strategies, reported lower average returns of 16.1 percent and 17.6 percent, respectively.

With last year's strong performance, three-year returns for the hundred and seventy-eight private foundations in the study rose to an average of 9.2 percent, compared with 6.1 percent the previous year, and to 8.9 percent for the eighty-seven community foundations in the study, compared with 5.6 percent the previous year. Trailing five-year returns also increased to an average of 6.6 percent for private foundations, up from 4.7 percent, and 6.4 percent for community foundations, up from 3.9 percent. 

The study also found that the effective annual spending rate among private foundations in 2019 fell slightly, to 5.4 percent, from 5.7 percent in 2018, and rose slightly for community foundations, to 4.8 percent, from 4.6 percent. Among community foundations, 71 percent reported an increase in their spending in 2019, up from 52 percent in 2018; 38 percent reported an increase in their grantmaking, down from 55 percent in 2018; and 51 percent reported a decrease in the number of gifts they received, up from 36 percent in 2018.

"The overall tone of intermediate- and longer-term returns reported for 2019 is very healthy for foundations and for the nation as a whole in light of the vital contributions foundations make to our society and national well-being," said Council on Foundations president and CEO Kathleen P. Enright and Commonfund president and CEO Mark Anson in a joint statement. "Multiyear returns in the 8 [percent] to 9 percent range are needed to fund foundations' spending in support of mission while also taking into account inflation and investment management costs. That said, the decline in gifts and donations to community foundations was not what one would have expected in 2019, which was a strong year for the economy and financial markets."

"2019 Council on Foundations-Commonfund Study of Foundations." Commonfund Institute and Council on Foundations report 09/28/2020. "2019 Council on Foundations-Commonfund Study of Foundations released." Commonfund Institute and Council on Foundations press release 09/28/2020.