Foundation endowments showed double-digit returns in 2012, following a sluggish 2011 with an average return of -0.7 percent. The average gain for foundation endowments last year was 12.0 percent. That was one of the results from the 2012 Council on Foundations-Commonfund Study of Investments for Private Foundations (CCSF).
“After a mildly negative 2011, private foundations secured double-digit gains in 2012, restoring much needed growth to their endowments, said John Griswold, executive director of the Commonfund Institute, based in Wilton, Conn, in a statement.
Some 140 institutions participated in this year’s study, collectively representing $78.7 billion in assets. Participants were broken up into foundations with more than $500 million in assets, between $101 million and $500 million, and less than $101 million. There was little variance among the groups: those with assets of between $101 million and $500 million saw the greatest returns at 12.4 percent, followed by over $500 million at 11.9 percent and under $101 million at 11.4 percent.
International equities led the pack with an average return of 17.5 percent, followed by domestic equities at a 16.3 percent return, and distressed debt (part of the alternative strategies category) of 14.7 percent. Short-term securities and cash had the lowest return, at 0.6 percent.
Alternative strategies made up the largest share of asset allocation both last year and in 2011, at 42 percent in 2012 and 44 percent the year before. Alternative strategies include distressed debt, private equity, energy and natural resources, commodities and venture capital, among others. Assets allocated to domestic equities grew by three percentage points, from 23 percent in 2011 to 26 percent in 2012. International equities grew to 16 percent of assets, from 12 percent in 2011.
Three-year net returns dropped from 10.3 percent in 2011 to 7.9 percent. The study’s authors said that this is because big gains in 2009 were no longer part of the three-year window. Both five-year and 10-year net returns grew last year over 2011 (1.4 percent to 1.8 percent and 5.2 percent to 7.9 percent, respectively).
About one-third, or 34 percent, of respondents reported an increase in their effective spending rates, compared to 22 percent reporting a decrease and 14 percent with no change. Effective spending rate, according to the study, is the market value of the foundation divided by the amount spent by mission. Overall, the effective spending rate declined from 5.5 percent in 2011 to 5.4 percent in 2012. This is normal in a year with strong returns, wrote the study’s authors.
Almost half (47 percent) of respondents reported an increase in dollar spending in 2012. One third, or 32 percent, reported a decrease, with 15 percent reporting no change and 6 percent unsure or not commenting. Some 57 percent reported an increase in 2011, with 23 reporting a decrease and 9 percent reporting no change.
The 13 foundations reporting to carry debt carried less last year than in 2011: $46.5 million in total compared to $54.1 million. Median debt rose from $14.0 million in 2011 to $14.6 million in 2012.
Finally, the number of full-time equivalent staff devoted to investments dropped from an average of 1.5 in 2011 to 1.4 in 2012. Almost one-quarter (23 percent) of participants reported having a chief investment officer, but 72 percent of organizations worth $500 million or more had one. Four in five reported using a consultant, up from 76 percent in 2011. The number of foundations who reported “substantially” outsourcing their investment activities rose from 30 percent in 2011 to 38 percent in 2012.