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10-Year Returns On Endowments Boosted In 2021

Private foundations generated average annual returns of 9.7% during the past 10 years, while community foundations realized returns of 9.2% during the same period. Both rates were boosted by recent strong gains, and marked the highest average annual rates of returns during the past decade, according to data in the 2021 Council on Foundations – Commonfund Study of Investment of Endowments for Private and Community Foundations.

The 10-year averages stood in contrast to five-year returns of 5.5% for private foundations and 5.3% for community foundations. At those levels, foundations found their ability to make grants, cover operating expenses or even keep pace with inflation was limited, according to the report.

“Strong investment returns in 2021 and in the years immediately preceding it have strengthened foundations’ ability to support current operations and continue to pursue their long-term mission and objectives,” Commonfund Institute Executive Director George Suttles said in a statement. “Obviously, there is no assurance that recent good investment returns will continue—as year-to-date financial market results for 2022 clearly illustrate—but we are optimistic that wise stewardship of foundations’ financial assets will help secure their vital role in our country for the long term.”

There is cause for tempering optimism, however: inflation and slowed economic growth may diminish rates of return going forward, impacting foundations’ assets and their grantmaking abilities. Additionally, foundations may be moving to conservative fiscal stewardship in order to meet long-term and evolving needs and ensure sustainable strategic giving during the next downturn, whenever it may occur.

That said, 2021’s returns among participating foundations were worthy of celebration. During 2021, private foundations observed by the study creators generated average returns of 16.3%, while community foundations realized returns of 14.8%. In contrast, private foundation returns were 13.1% during 2020, while community foundations saw 12.1% returns. Return rates are calculated net of fees.

During the decade, the biggest foundations saw the greatest growth: private foundations with assets in excess of $500 million generated 10-year annualized returns of 11.3%, while community foundations experienced annualized returns of 9.2% during the same period. Returns for mid-sized foundations – those with assets between $101 million and $500 million – and smaller foundations were not broken out, either by size or type, but returns ranged between 8.7% and 9.4%.

The reported gains weren’t the only changes noted by participating foundations. During 2021, 23% of private foundations sought to include investments that ranked high on environmental, social and governance (ESG) criteria, up from 19% in 2020. During the same period, commitment to researching ESG investments increase among community foundations to 24% from 20%.

Foundations also increased their commitment to investing with diverse managers, such as those at least 25% owned by women, people of color, veterans and people with disabilities. Nearly one in five – 17% — of private foundation leaders indicated a desire to do so, up from 11% in 2020, while 23% of community foundation leaders expressed willingness to do so, up from 13% a year earlier.

For all their gains in returns, foundations keep a tight grip on their distributions. Private foundations reported an average spend of 5.1%, a tick over the mandated IRS minimum spending rate of 5%. Just under six in ten – 59% — of private foundations used the IRS minimum as their spending policy.  Community foundations, which do not have to follow that minimum, spent an average of 4.6%.

The study analyzed 231 private and community foundations representing combined assets of $119.7 billion. A copy of the full findings is available here: https://info.commonfund.org/cof-commonfund-study-of-foundations

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