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Foundation investment returns slow down

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Commonfund Institute

Commonfund Institute

While investment returns for foundations and operating charities remained in double-digit positive territory in 2010, they’re lower than 2009, and five-year return rates still are too low to cover expenses and inflation, a new report says.

Private and community foundations posted an average total return of 12.5 percent in 2010, net of fees, down from the 21 percent earned in 2009, but a vast improvement over the 26 percent loss in 2008, says the report from the Commonfund Institute.

Operating charities, which include churches, cultural organizations and social-services institutions, earned an average of 11.6 percent on their investments, down from 21.5 percent return in 2009, but up sharply from the 25.8 percent loss in 2008.

Last year’s performance brings foundations’ three-year loss to 0.3 percent, the five-year return to 4.2 percent and the 10-year return to 5.1 percent.

“Over the nine years since the inception of the study, after accounting for investment returns and spending, the average foundation is slightly below its original nominal dollar value,” John S. Griswold, executive director of the Commonfund Institute, says in a statement. “This means that the last nine years have left foundations with less, in real terms, than they began with.”

Foundations

The 135 private and public foundations and the 40 community foundations included in the study held combined assets of $108.2 billion in 2010, and both types of funders earned 12.5 percent on their investments.

Domestic equities represented the best-performing asset class, returning 17.7 percent, followed by international equities, with 14.5 percent, and alternative strategies, with 10.6 percent.

Within the alternative-strategies asset class, energy and natural resources, commodities and managed futures earned 22.1 percent, more than any other asset class, while private-equity real estate lost 2.5 percent, the only loss posted in 2010.

As of the end of the year, 38 percent of foundation assets were invested in alternative strategies; 26 percent in domestic equities; 16 percent in international equities; 13 percent in fixed income; and 7 percent in short-term securities or cash.

The average spending rate was 5.8 percent in 2010, about the same as 2009, with private foundations’ spending flat at 5.8 percent and community foundations spending 5.9 percent, down from 6.5 percent in 2009.

Average debt held by foundations in 2010 was $67.4 million, down significantly from $113.1 million in 2009.

Operating charities

The 2010 report includes 32 cultural organizations, 28 religious institutions and nine social-services agencies, together holding a total of $20 billion in assets.

For those organizations, domestic equities also was the top-performing asset class, earning an average of 17.3 percent in 2010, followed by international equities, with 12.7 percent, and alternative strategies, with 8.6 percent.

Within the alternative-strategies asset class, energy and natural resources, commodities and managed futures earned the most, with a return of 23.6 percent, while equity real estate was lowest, losing 0.2 percent.

About 28 percent of operating charities’ assets were invested in alternative strategies; 24 percent in domestic equities; 20 percent in fixed income; 19 percent in international equities; and 9 percent in short-term securities or cash.

The average spending rate for operating charities was 4.6 percent in 2010, down slightly from 2009.

And while giving to operating charities in 2010 was up overall, 17 percent reported a decrease for the year, while only 10 percent reported an increase, half the share that earned more in 2009.

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