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Double Digit Drop In Private Foundation Returns

Private and community foundations reported average returns of about 6 and 5 percent, respectively, in 2014, down from 15-percent returns the previous year. Lower overall returns largely were affected by significant pullback on the average returns of domestic and international equities.

The third annual Council on Foundations-Commonfund Study of Investments of Endowments for Private and Community Foundations (CCSF) released today details data from 244 private and community foundations with combined assets of $107.4 billion.

The 142 private foundations in the study reported an average return of 6.1 percent, compared to 15.6 percent the previous year. The 201 community foundations in the survey reported average return of 4.8 percent, down from 15.2 percent the previous year.

Fixed income was the only class to see increased returns, at 3 and 4 percent, up from just below 0, for both private and community foundations. Domestic equities saw the largest drop in returns, from about 30 percent in 2013 to about 10 percent last year, while international equities dipped from about 15 percent gains to negative returns.

Alternative investments also helped hold back one-year returns to some extent. Within alternatives, commodities and managed futures were down 12 percent for both private and community foundations. Two areas within alternatives that were too small to analyze for community foundations boomed for private foundations last year: venture capital returned 22 percent and distressed debt returned better than 19 percent. Private equity real estate outpaced overall returns at about 12 percent, for both community foundations and private foundations.

In terms of asset allocation, private foundations had about 44 percent of their assets in alternatives strategies, up 2 percent from the previous year, and about a quarter in domestic equities. They also pulled back on international equities, from 20 percent to 18 percent. Community Foundations were more eventually spread out, with the largest allocation in domestic equities, moving from 28 percent to 34 percent last year, while pull back on alternatives, from 27 percent to 25 percent.

One-year returns lagged average returns over longer time periods as result of the 2008 financial crisis. Private foundations reported average returns of 11.1 percent and community foundations returns of 10.5 percent for the trailing three-year period. Longer time frames saw lower averages, about 9 percent on average for the trailing five-year period, and 6.3 percent for the trailing 10-year period.

“The data also provide important context for the financial story of foundation following the severe downturn of FY2008, when asset values declined in the range of 25 percent,” John S. Griswold, executive director of the Wilton, Conn.-based Commonfund Institute, said in a press release announcing the results. “The declines of that time have held down the trailing 10-year average return at just 6.3 percent, despite double-digit gains in more recent years.”

About 60 percent of foundations reported increasing grantmaking or mission-related spending in dollar terms in 2014. The average rate of increase was 21.1 percent for private foundations and 33.9 percent for community foundations.

The average effective spending rate was 5.4 percent for private foundations, down from 5.5 percent in the previous year. The spending rate was unchanged for community foundations, at 4.8 percent.

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