Foundation returns spike

Ret Boney

After plunging about 26 percent in fiscal 2008, investment returns for foundations and operating charities shot up about 21 percent in fiscal 2009, a new report says.

While the jump is encouraging, it will take several more years of strong gains to bring endowments back to their pre-recession levels, says William Jarvis, managing director and head of research for the Commonfund Institute, which published the study.

Even after the big jump in 2009, foundation endowments reached only about 89.5 percent of their pre-recession peak, while endowments for operating charities stood at 90.2 percent of their high.

“We have a situation where demand for the services of nonprofits is very strong, perhaps never higher, but the wherewithal they have to support their mission is still impaired,” says Jarvis. “And since it will take a while to restore their fortunes, it’s not clear how they will be able to provide the levels of support they have in the past – at least not for a number of years.”

While the 21 percent jump was the highest posted since the Commonfund began reporting on operating charities and foundations, three-year returns still stand at an average loss of 1.1 percent for foundations and a loss of 0.7 percent for operating foundations.

That performance can’t keep up with spending rates and inflation, says Jarvis.

And community foundations and operating charities, both of which are fundraising organizations, also experienced a drop in gifts in 2009.

Almost four in 10 operating charities report a decline in gifts, while two in 10 report increases.

Among community foundations, gifts were down for about 55 percent, with only 16 percent reported an increase.


The assets of the 173 foundations included in the study totaled $103.7 billion.

The best performing asset class among foundations in 2009 was international equities, which saw an average return of 39.1 percent, followed by domestic equities at 30 percent.

Distressed debt earned 25.9 percent and energy, natural resources, commodities and managed futures earned 21.8 percent. Private equity real estate, which lost 13.5 percent, was the only asset class to lose value.

Asset allocations stayed fairly steady for foundations from 2008 to 2009, with alternative strategies accounting for 35 percent of the total, followed by domestic equities with 28 percent, international equities with 16 percent, fixed income with 14 percent, and 7 percent in short-term securities and cash.

The average spending rate for foundations in 2009 was 5.9 percent, while average debt spiked to $113.1 million from $75 million in 2008.

Operating charities

The 66 operating charities included in the study reported combined assets of $22.5 billion for fiscal 2009.

International equities was the best performing asset class for operating charities, earning 37.4 percent, followed by domestic equities with 31.1 percent, and energy and natural resources, commodities and managed futures, which posted a 27.2 percent gain. Private equity real estate lost 16.2 percent.

About 28 percent of operating charities’ assets were invested in domestic equities in 2009, with 24 percent in alternative strategies, 21 percent in fixed income, 19 percent in international equities and 8 percent in cash and short-term securities.

The overall spending rate was 4.9 percent, while average debt rose to 69.5 million from $65.5 million.

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