Foundation Investment Returns Rose Significantly in 2017, Study Finds

Foundation Investment Returns Rose Significantly in 2017, Study Finds

Year-over-year investment returns (net of fees) for private and community foundations  improved significantly in 2017, a study by the Commonfund Institute and the Council on Foundations finds.

Based on survey data from two hundred and twenty-four private and community foundations, the 2017 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations found that private foundations reported an average return of 15 percent for the fiscal year ending December 31, 2017, up from 6.4 percent in 2016, while community foundations reported an average return of 15.1 percent, up from 7.3 percent. Returns for both private and community foundations were the highest in four years, with trailing five-year returns averaging 8.6 percent for private foundations, up from 7.6 percent the previous year, and 7.9 percent for community foundations, up from 7.3 percent. Return data by asset class showed that non-U.S. equities generated the highest return for both types of foundations, followed by U.S. equities, alternative strategies, fixed income, and short-term securities/cash.

The study also found that the effective spending rate among participating private foundations fell slightly in 2017, to 5.7 percent (from 5.8 percent in 2016), and rose slightly for community foundations, to 4.8 percent (from 4.7 percent). The rate remained unchanged for private foundations with assets of more than $500 million, at 5.3 percent, but fell for those with assets under $101 million; rose for community foundations with assets of more than $500 million, to 5.5 percent (up from 4.8 percent); fell for community foundations with assets between $101 million and $500 million, to 4.5 percent (from 4.8 percent); and remained unchanged for those with assets under $101 million.

In addition, spending in dollar terms increased for 74 percent of private foundations and 69 percent of community foundations with assets of more than $500 million, up from 60 percent and 42 percent in 2016. Only community foundations with assets between $101 million and $500 million reported a smaller increase in 2017 spending than in 2016.

"We are gratified with stronger investment performance in FY2017, but perhaps most reassuring is the increase in trailing ten-year average annual returns. For private foundations, the good return this year boosted trailing ten-year returns to an annual average of 5.5 percent compared to last year's 4.7 percent. For community foundations, the ten-year average annual return rose to 5.3 percent from 4.6 percent in FY2016. Even in the mid-5 percent range, returns are usually not sufficient to maintain the corpus of foundations' endowments after spending, inflation, and costs, but they offer some breathing room compared to last year," said Gene Cochrane, interim president and CEO of the Council on Foundations, and Mark Anson, CEO and chief investment officer of Commonfund, in a joint statement. "Based on last year's data, private foundations' effective spending rate was significantly higher than their annual ten-year return, while community foundations' ten -year return and spending were more closely aligned. We must hope for continued good results from the global financial markets for foundations of both types to support their operations and fulfill their missions over the long term."

"National Foundation Study Shows Investment Returns Rose in 2017; Spending Rates Mixed, Gift-Giving Increased for Community Foundations." Council on Foundations and Commonfund Institute Press Release 08/09/2018.