Assets up

By Ret Boney

U.S. foundations reported an average annual return on assets of 11.4 percent last year, compared to 17 percent in 2003 and an 8.7 percent loss in 2002, a new study says.

The report, “Commonfund Benchmarks Study – Foundations and Operating Charities 2005,” was conducted by the Commonfund Institute in Wilton, Conn., and analyzed the return on assets of 317 charitable groups.

“Returns were nice, they were solid,” says John Griswold, executive director of the Commonfund Institute.  “We probably won’t see those again for a year or two, given rising interest rates, a slowing economy and a fairly valued stock market.”

Smaller foundations, defined as those with assets of $50 million to $100 million, saw the highest rate of return, 11.8 percent, compared to 10.7 percent for the largest foundations, those with asset in excess of $1 billion.

“We’re seeing the smaller foundations with their higher allocations of stocks and bonds doing better than some of the larger foundations that are more diversified and more invested in alternative investment classes and strategies,” Griswold says.

Investment allocations last year were similar to 2003, the study says, with the share of assets in domestic equities down slightly from 48 percent to 45 percent, and the share invested in “alternative strategies” such as hedge funds up from 14 percent to 18 percent.

Seventeen percent of foundations held donated stock, which saw an average return of 9.8 percent and accounted for one-quarter of the portfolio across all groups, the report says.

The average spending rate across all foundations dropped to 5.8 percent of assets from 6.3 percent in 2003, the study says, with almost two-thirds of respondents saying their rate did not change in 2004.

Mid-sized foundations, defined as those with assets from $101 million to $500 million, were the only group in 2004 to spend at a higher rate, which grew to 5.9 percent from 5.6 percent in 2003.

More than three in 10 foundations reported having restricted endowment funds whose current value had fallen below initial value, the report says, with four in 10 of those groups spending income only.

Across all size groups, foundations used an average of 15.3 money managers in 2004, up from 14.2 in 2003, with the largest foundations, those with assets of $1 billion or more, using 45.3 in 2004, up from 38.4 the previous year.

Investment committees grew to an average of 6.6 members in 2004, up from 6.3, the study says, and almost nine in 10 foundations reported having conflict-of-interest policies for members, with just over two in 10 saying they allow their board members to conduct business with the foundation.

“There’s a whole host of reasons to be concerned about how you run your organization,” Griswold says, pointing to such activities as the Senate Finance Committee’s investigation of the nonprofit sector. “Those kinds of things will come more and more to the fore when legislation is enacted.”

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