According to the 2013 Council on Foundations-Commonfund Study of Investments for Private Foundations (CCSF), the highest return, at 16.5%, was earned by organizations with assets greater than $500 million. Foundations with assets between $101 million and $500 million realized an average return of 15.5%, while foundations with assets less than $101 million reported an average return of 15.2%. (All returns are net of fees.)
Looking at multi-year results, the 2013 study shows trailing three-year returns for participating foundations averaged 8.7% compared to 2012’s 7.9%. Trailing five-year returns jumped to 12.0% from 1.7%, as the poor return of 2008 (-25.9%) dropped out of the five-year calculation. For the trailing 10-year period, returns averaged 6.9% compared with last year’s 7.9%.
By specific asset classes and strategies in fiscal year 2013, domestic equities produced the highest return—an average of 31.8%, double the 15.9% return reported for investments in international equities. Alternative strategies generated a return of 7.3%, while short-term securities/cash/other returned 0.1%. Fixed income produced a negative return in FY 2013 of -0.7%, as the gradual withdrawal of market support by central banks caused historically low interest rates to rise and bond prices to fall.
Within the broad category of alternative strategies, distressed debt produced the highest return for the second consecutive year, at 24.4%. Venture capital returned 14.2%, marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, event driven and derivatives) reported a 12.6% advance, and private equity (leveraged buyouts (LBOs), mezzanine, mergers and acquisitions (M&A) funds and international private equity) returned 11.4%. Private equity real estate (non-campus) returned 9.4%, and energy and natural resources returned 4.9%. Commodities and managed futures produced a negative return for the year, at -8.3%.
On December 31, 2013, participating institutions’ asset allocations were:
- Domestic equities: 24% (compared to 26% in FY 2012);
- Fixed income: 9% (11% in FY 2012);
- International equities: 20% (16%);
- Alternative strategies: 42% (42%); and
- Short-term securities/cash/other: 5% (5%).
The number of full-time professional private foundation staff devoted to investments averaged 1.3 full-time equivalents (FTEs), a decline from last year’s average of 1.4 FTEs and 1.5 FTEs in FY 2011. Twenty-five percent of study participants reported having a chief investment officer, a figure that rose to 58% among the largest participating foundations with assets greater than $500 million. Seventy-three percent of study participants reported using a consultant compared with 80% one year ago. Thirty percent of respondents said they have substantially outsourced their investment function, down from last year’s 38%, and back to the level reported in FY 2011. Ninety-five percent of participating foundations reported they have a conflict of interest policy.
The average number of voting members on participating foundations’ investment committees was 5.5, up from 5.4 reported for the two previous years. The average number of investment committee members who are investment professionals was 2.4, down slightly from 2.5 last year, while investment committee members with alternative strategies experience stood at 1.6, down moderately from 1.7 reported for the last two years.
The CCSF includes data from 153 private foundations with assets of $94.1 billion. More information about Commonfund is at http://www.commonfund.org.