June 23, 2005 | Read Time: 2 minutes
Foundations and other nonprofit organizations produced an average return of 11.4 percent on their investments last year, according to preliminary results of a new study by the Commonfund Institute. In fiscal 2003, the institutions gained an average of 17 percent.
Foundations and other organizations with assets of $1-billion or more saw returns of 10.7 percent, compared with 20.5 percent in the previous year. In a reversal of recent years’ performance, smaller foundations outperformed bigger ones. Those with $50-million to $100-million in assets had returns of 11.8 percent in 2004.
The study, which was based on data from 317 private and community foundations as well as other nonprofit groups and charities, found that many institutions are diversifying their portfolios by putting more money into alternative investments, such as hedge funds.
The Commonfund Institute is the educational arm of Commonfund, which manages investments for nonprofit institutions. Not all participants in the survey were Commonfund clients.
Because investment growth is expected to slow in 2005, foundations and other nonprofit groups will have a harder time dealing with a possible resurgence of inflation, said John S. Griswold Jr., executive director of the Commonfund Institute. More than one-third of the organizations in the survey reported that in 2004 they held “underwater funds,” which are restricted endowment accounts that have lost value and produce insufficient revenue to support the programs for which they were created.
Overall, the average spending rate at foundations and other organizations dropped to 5.8 percent, compared with 6.3 percent in 2003, the study found. However, midsize foundations, with assets of $101-million to $500-million, increased their spending slightly.
Eighty-seven percent of the foundations and other organizations said that they had adopted conflict-of-interest policies for members of their investment committees, and that protecting their reputations was one of the most important issues they were worried about.
The final version of “Commonfund Benchmarks Study — Foundations and Operating Charities 2005″ is expected to be available at the end of this month. For more information, go to http://www.commonfund.org.
Erin Strout is a reporter at The Chronicle of Higher Education.
