Foundations Report a Drop in Investment Returns in 2010

(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.

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.