Foundations Reap Biggest Returns Since 2013
These non-profit investors gained 15 percent on average last calendar year, crushing their 2016 returns, according to new data from Commonfund and the Council on Foundations.
Foundations produced investment gains last year that were the biggest since 2013, according to an annual survey by the Council on Foundations and Commonfund Institute.
Private foundations returned an average 15 percent net of fees in the 2017 calendar year, more than doubling the 6.4 percent gains posted the year before, the survey showed. Community foundations reported an average 15.1 percent return, which followed their 2016 average of 7.3 percent.
Private foundations generally have financial support from one or a “small handful of sources,” while community foundations are public charities such as the American Red Cross or YMCA, according to the Council on Foundations’ website.
The study was based on responses from 224 foundations overseeing about $104 billion at the end of last year. Foundations target high returns to meet typical annual spending rates of around 5 percent plus inflation, according to Deborah Spalding, Commonfund’s deputy chief investment officer and a managing director.
The group benefited last year from “very strong markets across the board,” particularly in public equities, Spalding said Wednesday during a media call about the findings.
Private foundations, for example, had average U.S. equities returns of 20.5 percent last year, up from 11.8 percent in 2016, according to the study. They reaped 26.4 percent gains from equities listed outside of the U.S., soaring from an average return of 4.8 percent in 2016.
Alternative investment strategies are popular with foundations, particularly private and large ones, Spalding said. Private foundations yielded an average 9.7 from alternatives last year, while community foundations saw an 8.6 percent return, the survey showed.
At the end of last year, private foundations had 43 percent of their portfolios allocated to alternative assets such as private equity, hedge funds, and venture capital. Their second-largest exposure was to public equities, including a 24 percent allocation to U.S. stocks and 21 percent to equities markets outside the U.S, according to the survey.
Commonfund — which manages $25 billion in assets for non-profit clients — remains “modestly overweight equities,” Spalding said during the call. Investors at the outsourced-CIO provider expect more volatility this year, she said, but strong corporate earnings and economic growth continue to provide a good backdrop for equities markets.
(Note: This story was updated August 30 to correct the gains detailed in the sixth and seventh paragraphs as the data points originally supplied in the study were inaccurate. Commonfund has updated its study.)