Foundations Make Changes in Investments in the Wake of the Global Financial Crisis

American foundations are making changes in their investment policies after their assets dropped by nearly 28 percent last year, according to a new report from the Council on Foundations, an organization that represents grant makers.

A survey of 127 council members, conducted in January, found that “a substantial proportion are making changes in their investment managers, their diversification, and aggressiveness of their investment strategies,” the report says.

The council found that more than 40 percent have lowered the percentage of their assets held in domestic stocks while more than one-third reduced the amount invested in international stocks. Thirty-seven percent have increased the proportion of assets held in cash and fixed-income securities.

What’s more, nearly half of the foundations said they had switched investment managers in the past year or were considering doing so.

Big Foundations Hit

The biggest foundations were most likely to be considering a switch — with two-thirds either already making a switch or contemplating one. That may be because the foundations with the biggest assets were those with the largest declines. Grant makers with $250-million or more in assets reported losses of nearly 29 percent last year, according to the council.

In comparison, the losses for the smallest foundations — those with assets of less than $10-million — averaged a drop of 21 percent.

The council cautions that those figures are not the same as the rate of return on endowment investments, because they don’t take into account the money foundations have spent to make grants or the amounts that living donors added to their foundations in the past year. But the sharp decline does offer further proof that the free fall of the stock market over the past few months has pummeled foundation assets. (For more on the state of foundation assets, see the results of a Chronicle study.)

In seeking details about investment strategies, the council found that, while roughly three-quarters of foundations said they envisioned retaining their overall investment strategy, those making changes generally said they are becoming more conservative in their investments. Moreover, 20 percent reported they were seeking ways to reduce the investment fees tied to their portfolio.

Roughly 80 percent of survey respondents reported that their investment portfolio is currently “about the same” as it was as of June 30, 2008. Family foundations were more likely to have made changes in their investment mix, with 22 percent saying that they were experimenting with ways to broaden their holdings. And among those foundations with real-estate holdings, 9.6 percent reduced the share of holdings they had in such investments.

Eighty-four percent of the foundations said they had a written investment policy.

The Council on Foundations report, “Asset Declines and Investment Strategy Changes by Family, Independent, and Public Foundations,” is available on the council’s Web site.