Private and community foundations reported average annual returns in 2019 of almost 20 percent, a huge rebound from 2018 when one-year returns were negative. It was their best showing in a decade.
Private foundations reported an average return of 17.4 percent and community foundations reported an average of 18.2 percent, according to the 2019 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations (CCSF). In 2018, private foundations reported average returns of -3.5 percent and community foundations reported -5.3 percent.
The strong one-year returns boosted three- and five-year returns but 10-year returns weakened after 2009.
For private foundations, three-year returns were 9.2 percent; five-year returns were 6.6 percent, and 10-year returns were 7.8 percent. For community foundations, three-year returns were 8.9 percent; five-year returns were 6.4 percent, and 10-year returns were 7.7 percent.
The study participants include 265 foundations representing combined assets of $104.7 billion. It’s the eighth year that Commonfund Institute and the Council on Foundations have partnered to produce the research.
Participating foundations reported their effective annual spending rate was down slightly for private foundations, 5.7 percent to 5.4 percent, while it was up slightly for community foundations, 4.6 percent to 4.8 percent.
“Multi-year returns in the 8 to 9 percent range are needed to fund foundations’ spending in support of mission while also taking into account inflation and investment management costs, according to Kathleen Enright, president and CEO of the Council on Foundations, and Mark Anson, president and CEO of Commonfund.
Spending by community foundations jumped, with 71 percent reporting increased spending in 2019, up from 52 percent in 2018. Gifts and donations to community foundations was weaker, despite the higher returns, with 38 percent reporting increase giving compared with 55 percent in 2018. More than half (51 percent) reported a decrease in gifts, up from 36 percent in 2018.
The highest single return in 2019 was 18.5 percent, for community foundations with assets of less than $101 million, thanks to a relatively high allocation of U.S. equities -- 43 percent versus 33 percent for all community foundations, and 27 percent for all private foundations.
Returns for the largest participation foundations, those with assets of more than $500 million, were strong but lagged on a relative basis because of smaller allocations among U.S. equities. Their largest allocations were in alternative investments which produced good absolute returns but fell short of public equities.
More than half of private foundations (54 percent) and two-thirds of community foundations (67 percent) said they made no change to their spending rate after the COVID-19 pandemic was declared in March. More than a third of private foundations (35 percent) and slightly fewer community foundations (28 percent) said they increase spending rates. Only 6 percent of private foundations and 3 percent of community foundations said they lowered spending rates.
Among the largest private foundations, those with more than $500 million in assets, almost half (48 percent) reported increasing spending rates compared with just 3 percent that decreased. Among the largest community foundations, 40 percent reported increasing their spending rate while 60 percent said it was unchanged.