A Look at Investments, Borrowing Trends, and Charity Views on Finances

Investments held by private and community foundations performed better than two major stock-market indicators last year, but still declined nearly 9 percent in value, according to a new study by the Commonfund Institute, an organization in Wilton, Conn., that provides financial information to grant makers and other nonprofit groups.

Results of a survey of 230 foundations — most of them clients of Commonfund, an investment and fund-management company connected with Commonfund Institute — show that grant makers’ portfolios declined largely because of a downturn in the stock market. Participating foundations reported that nearly half of their holdings were in domestic stocks, with the rest divided among fixed-income investments, international stocks, short-term securities, and so-called alternative strategies, such as hedge funds.

Foundation investments still outpaced the Standard and Poor’s index, which fell 18 percent last year, and the Nasdaq index, which fell 32 percent, largely because grant makers have begun to direct more of their portfolios away from stocks in individual companies, said John S. Griswold Jr., executive director of the Commonfund Institute. Nearly two-thirds of foundations surveyed said they had changed their mix of investments during fiscal 2002.

“Foundations, especially the largest ones, are more diversified and are doing better than they would if they hadn’t changed their investment mix,” said Mr. Griswold. “We were pleasantly surprised to see a high level of diversification.”

Grant makers with $1-billion or more in assets saw the value of their portfolios drop 7 percent, while the holdings of foundations with assets of $50-million to $100-million fell 10 percent, the study found.

The survey is the first undertaken by the Commonfund Institute of foundations and their investments, said Mr. Griswold. The Commonfund Institute hopes to do the study annually, as it does a benchmark study on endowments of educational institutions, he said.

Foundations and other nonprofit groups can order free copies of the study through the Commonfund Institute, 15 Old Danbury Road, Wilton, Conn. 06897, or by contacting Mr. Griswold at jgriswol@cfund.org.

Record-low interest rates have contributed to a 26-percent increase in the amount of money that nonprofit groups, private schools and colleges, and public universities have borrowed this year, according to a new report by Moody’s Investors Service, a credit-rating company in New York.

A challenging fund-raising environment and a decline in the investment assets of many of those organizations has increased the possibility that they will face continued difficulties in paying their debts, Moody’s says.

Credit ratings gauge an organization’s ability to repay a loan. A strong credit rating generally makes it easier to borrow money, and can allow a borrower to negotiate an interest rate that is more favorable than rates for groups with lower credit ratings.

Moody’s has reduced the credit ratings of 24 nonprofit groups, higher-education institutions, and private schools so far this year, compared with 18 downgrades for such groups during all of 2002. Nineteen private colleges, three preparatory schools, and two nonprofit groups — National Wildlife Federation, in Reston, Va., and Virginia Horse Center, in Lexington, Va. — have had their credit ratings reduced slightly this year.

“The full impact of the drain on financial resources in nonprofit organizations is only starting to be felt,” said Roger Goodman, a Moody’s analyst, who wrote the report. “Groups could continue to have a difficult time balancing their budgets in 2004 and 2005 because of what has happened to their endowment values during the past three years.”

The report, “2nd Quarter Review 2003: Higher Education and Not-for-Profit Institutions,” can be obtained free by sending an e-mail to higher.education@moodys.com. Copies also can be obtained by writing to Devika Ramdat, Moody’s Investors Service, 99 Church Street, New York, N.Y. 10007, or by calling (212) 553-1658.

The economy’s woes are on the minds of the majority of charity officials, a new survey has found.

A Johns Hopkins University survey of 365 organizations found that 81 percent considered fund raising a “very significant” challenge.

Museums and theaters identified fund raising as a very significant challenge at higher rates — 91 percent and 90 percent respectively — than did nonprofit organizations in the social services and community development.

Sixty-three percent of the organizations surveyed said government budget cuts posed a “very significant” challenge, and 61 percent said the same of the rising cost of health-care benefits.

The survey was the start of a project designed to illuminate how charities are run and to bridge the gap between day-to-day experience in the nonprofit world and academic research on the field.

Working with eight national umbrella associations, the Center for Civil Society Studies at the Johns Hopkins University, in Baltimore, has recruited 486 charities in five fields — services for children and families, community and economic development, services for the elderly, museums, and theaters — to participate in a series of online surveys. The Listening Post Project is in the process of recruiting 500 additional charities from a random sample of the Internal Revenue Service’s list of tax-exempt organizations to participate in future surveys.

Rick O’Sullivan, assistant director of the Listening Post Project, says the effort was forged out of concern that “there really isn’t a mechanism that allows practical experience and information to come out of the field to researchers in a timely fashion.”

Representatives of the eight umbrella organizations that are involved in the project — the Alliance for Children and Families, the Alliance for Nonprofit Management, the American Association of Homes and Services for the Aging, the American Association of Museums, the National Congress for Community Economic Development, the National Council for Community Behavioral Healthcare, the National Council of Nonprofit Associations, and Theatre Communications Group — form a steering committee that helps direct the research.

Officials of the Listening Post Project expect to conduct at least four surveys per year. The next survey will ask participating charities how government budget cuts are affecting their work. The project has received grant support from the Carnegie Corporation of New York, the Ewing Marion Kauffman Foundation, and the Surdna Foundation.

More information about the Listening Post Project and the complete results of its first survey are available at http://www.jhu.edu/listeningpost.