Investment Returns for Foundations and Charities Down in 2010

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May 31, 2011; Source: Financial News | After tanking in late 2008 and staggering through much of 2009, the stock market is way up. But returns in 2010 for foundations and operating charities do not appear to be as robust as some expected. Recent reports from Commonfund about investment performance contained a number of surprises:

  • Investment returns down from 2009: “Foundations and charities achieved investment returns of 12.5% last year, compared to returns of 21% in 2009.”
  • Small foundations doing better than large: “Foundations with up to $100m outperformed foundations with over $1bn in assets by 1.1 percentage points in 2010, and by 4.1 percentage points in 2009.”  This is due in part to the conservative investment portfolios of smaller foundations compared to larger foundations’ shift to “alternative” investments.
  • Tried and true religion: Favoring alternative strategies over diversification, religious charities “outperformed their cultural and social service counterparts over the past two years…return(ing) 22.3% in 2009 and 11.8% in 2010…[compared to] cultural [institutions] [which] returned 22.3% in 2009 and 11.5% in 2010, and social service [organizations at]…17.1% in 2009 and 11% in 2010.”
  • For all you investor-types: “The best performing asset class was energy and natural resources, commodities and managed futures, which returned 22.1% for the year. Behind that were domestic equities, at 17.7%; distressed debt, 15%; international equities, 14.5%; private equity 11.3%; alternative strategies, 10.6%; venture capital, 9.4%; short-term securities and cash, 9.2%; marketable alternative strategies, 9.1%; fixed-income, 8.1%; and private equity real estate, -2.5%.”
  • Foundations doing better than charities in the market: Foundations had a 12/5 percent return in 2010 compared to 20.9 percent in FY2009 and -26.0 percent in 2008; charities had an average net return of 11.6 percent in 2010, 21.5 percent in 2009, and -25.8 percent in 2008.

There was one very surprising finding mostly overlooked by the press. Most nonprofits know that foundations cut back their grantmaking starting in 2008, even though the market didn’t collapse until late in the year, and continued for the following two years. But Commonfund reports that the three-year net returns of all of the foundations it studied was only -0.3 percent. Foundations over $1 billion, did better at 0.1 percent and $500 million to $1 billion foundations had returns of 0.6 percent. It appears foundations cut back on their grantmaking more than warranted. In other words, despite foundations’ commitment to three-year rolling averages, their nonprofit grant recipients got rolled.—Rick Cohen