Foundations Increased Investments in Stock in Late 1990s, New Study Finds

Foundations of all types and sizes are investing more of their endowments

in stock than they did in the early 1990s, according to a new report by the Council on Foundations.

Sixty-four percent of foundation endowment assets were invested in domestic and foreign stock at the end of 1999, up eight percentage points from 1996, the last year that the council conducted the survey.

The investment report was based on a survey of 720 community, family, independent, and public foundations. Family and independent foundations made up 58 percent of the respondents. Community foundations — which typically raise money and distribute it in a specific geographic area — represented 33 percent of respondents, and public foundations about 9 percent.

The foundations that participated in the survey had total assets of $130.7-billion in 1999 and made $5.6-billion in grants that year. More than a third of the respondents had assets of less than $10-million.

Family foundations held more of their total assets in stocks — about 69 percent — than did other types of grant makers, according to the report.

Among the report’s other findings:

Venture-capital funds. Foundations are increasingly investing their assets in venture-capital funds. The proportion of assets invested in such funds quadrupled from 1996 to 1999, to almost 2 percent, with some types of foundations investing even more.

Investment managers. Most foundations rely entirely on outsiders to handle and trade their securities. Seventy-seven percent of those surveyed said they let an outside investment manager handle all trades. For the largest foundations surveyed — those with $500-million or more in assets — 82 percent let outside managers handle the investing.

Investment screens. Some 16 percent of foundations require their investment managers to apply social and ethical criteria when choosing which stocks to buy, such as avoiding companies that sell tobacco or pollute the environment. The proportion of funds that use these so-called investment screens remained virtually the same compared to findings three years earlier.

The council’s report on finances, portfolio composition, investment management, and administrative expenses appears in the first volume of the 10th edition of the “Foundation Management Series,” a three-volume set that covers grant makers’ finances, governance, programs, and staffing.

Copies of the report are available from the Publications Department, Council on Foundations, P.O. Box 98293, Washington, D.C. 20090; (888) 239-5221. The price is $40 for members or $80 for nonmembers, plus a shipping charge. The report also can be ordered through the Council on Foundations Web site at http://www.cof.org.