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Foundations’ Investment Returns Continue to Grow

By The NonProfit Times - July 23, 2014

Investment returns at private foundations continued their strong gains last year, rising to an average of 15.6 percent according to a new study by the Commonfund Institute and the Council on Foundations (CoF).

The 2013 Council on Foundations-Commonfund Study of Investments for Private Foundations (CCSF), which draws its data from a survey of 153 private foundations with combined assets of $94.1 billion, revealed that investment returns grew by double-digits for the second straight year after hitting 12.0 percent in 2012. This represented a huge increase from the -0.7 percent return in 2011.

In a joint statement, Vikki Spruill, President and CEO of the Council on Foundations, and John S. Griswold, Executive Director of Commonfund Institute, said, “This report contains good news for the country. With double-digit returns for the second year in a row, private foundations have regained solid financial footing positioning them well for community investment.”

Foundations that participated in the CCSF study also saw an increase in mission-related spending, with 56 percent reporting such an increase, up from 47 percent in 2012. Only 26 percent reported a decrease, down from 32 percent the previous year.

Overall, the average effective spending by foundations – measured by dividing the amount spent on mission by the market value of the foundation at the beginning of the year – rose to 5.5 percent in 2013, up slightly from 5.4 percent in 2012. Large foundations had the lowest effective spending rate at 5.2 percent; medium-sized foundations had the highest at 5.7 percent.

“As communities continue to recover, they look to government, businesses, and the philanthropic sector to help them find solutions,” said Spruill and Griswold. “As foundation assets continue to rebound, they have more resources to invest in programs that advance the common good.”

According to the CCSF, foundation size played a big role in determining the percentage of investment return. Those foundations with assets over $500 million had the largest return, at 16.5 percent. Foundations with assets between $101 and $500 million, meanwhile, realized an average return of 15.5 percent, while foundations with assets under $101 million reported an average return of 15.2 percent.

Among investment returns from specific asset classes and strategies in FY2013, domestic equities produced the highest by far-an average of 31.8 percent, double the 15.9 percent return reported for investments in international equities. Alternative strategies generated a return of 7.3 percent, while short-term securities/cash/other returned 0.1 percent. Fixed income produced a negative return in FY2013 of-0.7 percent, with Spruill and Griswold explaining that the gradual withdrawal of market support by central banks caused historically low interest rates to rise and bond prices to fall.

Other key findings from the CCSF include:

  • 12 foundations reported having a debt of $42.4 million, down from $46.5 million in 2012 and $54.1 million in 2011.
  • Median debt of these same organizations also fell, dropping to an average of $11.1 million after a high of $14.6 million in 2012.
  • 25 percent of participants reported having a chief investment officer. This number rose to 58 percent among the largest foundations.
  • 73 percent of foundations reported using a consultant for investment activities, down from 80 percent in 2012.

You can view the full CCSF report for free by clicking here.

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