Foundation Investment Returns Fall, but Spending Rate Remains Steady

Foundations’ investment portfolios stagnated — and in some cases shrank — in 2015, according to a new study. It was the second consecutive year that returns slowed, and many grant makers expect more of the same.

“It is going to be a tough couple of years,” Kim Lew, chief investment officer at Carnegie Corporation of New York, said Tuesday during a conference call regarding the findings.

Private foundations saw an average return of 0.0 percent on endowment investments in 2015, according to the study, down from 6.1 percent the previous year. Community foundations reported an average return of minus 1.8 percent, down from 4.8 percent in 2014.

The 10-year average return for private and community foundations was 5.5 percent and 5.2 percent, respectively.

Spending across all foundations in 2015 stayed steady at an average of 5.1 percent. In terms of dollars spent, more than half of private and community foundations increased their spending in 2015 as compared to 2014.

The numbers are a reflection of a weak year on Wall Street. The S&P 500 finished down nearly 1 percent on a price basis in 2015, though dividend yields pushed its total return to 1.3 percent.

While it is encouraging to see foundations increase actual dollars spent, said Mark Anson, chief investment officer at Commonfund, he also had warning: “Be careful out there. It could be a bumpy road ahead.”

Another year or two of poor returns and “there will be cutbacks in spending. It is inevitable,” Mr. Anson said.

Released Tuesday, the 2015 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations included 228 foundations with a combined $100.6 billion in assets. It was published by the Council on Foundations and the Commonfund Institute, the research arm of Commonfund, an investment firm in Wilton, Conn., that specializes in managing the holdings of nonprofits and educational institutions. It is the fourth such report from the two organizations.

‘Downward Trend’

The 2015 numbers laid bare a multiyear slump for endowment returns. In 2013, private and community foundations had average investment returns of 15.6 percent and 15.2 percent, respectively.

In the 2014 report, 16 percent of private foundations with assets of at least $500 million said that they were targeting a long-term return of at least 9 percent. In 2015, just 8 percent of foundations had set that goal. Community-foundation leaders also revised downward their investment projections.

“If we look at the last three years it is very clear we are in a downward trend, and I think 2016 will be equally difficult and challenged,” Mr. Anson said.

Ms. Lew of Carnegie Corporation said that she and her peer investment officers are pursuing increasingly complex investment strategies to ensure foundations can hit their 5 percent payouts. It’s work made more difficult by the fact that many foundations are too small to get access to some of the biggest and highest-performing investment funds and fund managers.

College and university investment funds also grew slower last year than the year before, according to another survey conducted by the Commonfund Institute and the National Association of College and University Business Officers. From July 1, 2014, to June 30, 2015, those funds grew 2.4 percent, down from 15 percent the previous year.

So far in calendar 2016, the S&P 500 is up 6.85 percent.