June 29, 2006 | Read Time: 2 minutes
The endowments of the nation’s foundations achieved an 8.1-percent gain on their investments last year, according to an annual study by the Commonfund Institute. That represents the second consecutive year in which foundations’ investments grew at a lower rate than the previous year. In the 2004 fiscal year, foundation endowments earned an average of 11.4 percent, which was down from 17.8 percent in 2003.
Even so, the returns reported by the 334 private, operating, and community foundations that participated in the survey outperformed by a wide margin the three major equity indexes in 2005. The Standard & Poor’s 500 rose 3 percent and the Nasdaq 1.4 percent last year, while the Dow Jones industrial average fell 0.6 percent.
“Foundation investment performance was better than expected given the challenging, low-growth environment last year,” John S. Griswold Jr., executive director of the institute, said in a statement accompanying the study.
Size Doesn’t Matter
The return on investments showed little variation between larger and smaller foundations. Foundations with more than $500-million in assets reported earning 8 percent, while those with endowments of $101-million to $500- million grew by an average of 8.4 percent, and those with $51- million to $100-million grew by 7.4 percent on average.
The Commonfund Institute is the research arm of Commonfund, a company in Wilton, Conn., that manages $34-billion in assets for 1,600 educational institutions, foundations, and health-care and other nonprofit organizations.
Along with the decreased return on investments, foundations also distributed a smaller percentage of their assets in 2005 than they did in 2004. The average share of assets spent fell to 5.5 percent from 5.8 percent.
Foundations sharply cut the portion of their endowments invested in stocks of American companies last year, down to 37 percent of all assets, from 45 percent in 2004. Instead, the organizations put more into international stocks (up to 18 percent of all investments, from 14 percent the previous year), cash and short-term investments (accounting for 6 percent, double the 3 percent in 2004), and alternative investments such as hedge funds, real estate, and natural resources (20 percent in 2005 compared with 18 percent the year before). Foundations also slightly cut the percentage in fixed-income investments like bonds, to 19 percent from 20 percent the year before.
Copies of “Commonfund Benchmarks Study — Foundations and Operating Charities 2006″ are available free to nonprofit organizations and can be obtained by contacting Mr. Griswold via e-mail at jgriswol@cfund.org. For those not affiliated with nonprofit groups, copies of the survey findings cost $250.
