Foundations Report a Drop in Investment Returns in 2010

Two studies from the Commonfund Institute have revealed that foundations and operating charities have reported an average investment return of 12% in fiscal year 2010 — marking the second consecutive year of double-digit growth, yet a hefty drop from the average investment return from 2009.

(May 26, 2011) — Foundations and charities achieved investment returns of 12.5% last year, compared to returns of 21% in 2009, according to two studies -— one of foundations and the other of charitable organizations — released by the Commonfund Institute.

While last year’s returns weren’t as stellar as those achieved the previous year, they were significantly above the performance in 2008, when returns totaled negative 26%.

According to a report on the survey — the 2011 Commonfund Benchmarks Study of Foundations — 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%.

At the end of 2010, the average asset allocation for foundations was 38% alternatives, 26% domestic equities, 16% international equities, 13% fixed income and 7% short-term securities, cash and other investments.

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The Commonfund Benchmarks Study of Foundations consisted of results from 175 independent and private foundations and the Commonfund Benchmark Study of Operating Charities consisted of 69 charities.

A previous study of endowments, released in January showed that endowments in the US returned an average of 11.9% for the 2010 fiscal year, a sharp improvement compared to the negative 18.7% average return reported in the previous year’s study.

“The study reflects the heightened importance that institutions are paying to liquidity, cash reserves, and investment policies,” William E. Jarvis, managing director of the Commonfund Institute, told aiCIO following the release of the report. “The changes you’re seeing with endowments reflect the fact that the endowment model is alive and well, despite commentators over the last few years who have questioned the model,” he said, noting that while endowments are still below their pre-crisis peaks in terms of size, highly diversified portfolios have enabled endowments around the country to weather the financial storm.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Biggest Concern for Bond Investors: Sovereign Debt Problems

According to Fitch’s latest European senior fixed-income investor survey, Europe's sovereign debt crisis remains a major worry with 64% of respondents, up from 56%, expecting developed market sovereigns to face their biggest refinancing challenge.

(May 25, 2011) — Europe’s sovereign debt crisis has remained a major worry for investors, according to Fitch’s latest European senior fixed-income investor survey, obtained by Global Pensions.

The survey, conducted between March 31 and May 2, polled the views of managers of an estimated $4 trillion of fixed-income assets.

The biggest concern for bond investors, the survey showed, is Europe’s sovereign debt crisis, with 64% of respondents, up from 56%, expecting developed market sovereigns to endure the biggest refinancing challenges.

The worries echo recent sentiments by Harvard professor of economics Gita Gopinath, who said during an investor forum that pensions — typically large bondholders — may be forced to take a loss on their investments as a result of the European sovereign debt crisis. At the Dublin-based forum — titled Adjusting to New Realities — among Europe’s largest institutional investors and asset managers responsible for the investment of more than €1 trillion of funds, 75% of those in attendance saw a high likelihood of default in the Eurozone within three years. Gopinath asserted that the solution would likely be for bondholders, namely pension funds, to take some form of a loss on their investments, “given the sheer scale of the debt amounts involved.”

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Fitch’s study additionally showed that inflation concerns continued to rise, with 68% of respondents seeing inflation risks as high, up from 55% in the previous survey.

Furthermore, the study revealed a growing concern among managers over credit prospects. Compared to 40% of respondents that expected improvements in credit conditions for high-yield assets to decline in the previous quarter, the study showed that the percentage increased to a total of 53%. Meanwhile, concern over banks has lessened, with only 17% of respondents saying they were worried about banks’ refinancing issues, compared with 35% in the previous survey.

Lastly, Fitch reported that the commitment to emerging markets, which has attracted the most consistently bullish sentiment over the last four quarters, has continued to gain steam.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742