Study Shows Foundation Returns Dropped in 2005

The average annual returns in fiscal years 2004 and 2003 were 11.4% and 17.8% respectively, according to the results provided in the institute’s news release. The average annual return for the top 10% of companies with the highest returns was 15.5%, and the companies in the top quartile had an average annual return of 12.4%.

For 2004’s results, see  Charities, Foundations Show ‘Strength and Stability’ in 2004 Performance , and for 2003’s results, see  FY 2003 Golden for Non-Profit Health-Care Firms .

For all institutions, the three-year average was 13.9% and the 5-year average was 5.2%. Three-year returns for the top decile were 17.3% and 16.1% for the top 25%. Five-year returns for the top 10% were 7.5%, and was and 6.7% for the top quartile.

The study recorded significant asset allocation changes – domestic equities declined 37%, in comparison to 45% for the 2004 fiscal year. Index equities increased by 7% to 24% in 2005. Overall, investors significantly increased their investment in domestic bonds – up to 86% versus 2004’s 82%, but global bonds went down to 6%. Investments in high yield and international bonds also fell, 4% and 3% respectively, according to the survey results.

Foundations and charities went in the opposite direction, reducing investments in domestic bonds but increasing activity in global bonds, according to the survey results.

Almost all (94%) of the companies that responded said they have and use policy portfolios to compare their performance to a benchmark and as/or targets for rebalancing.

More than one third (37%) of the foundations responded that their companies would probably decrease domestic allocations in 2006, according to survey results. Eighteen percent of the foundations said they project that they will decrease fixed income allocations in the next fiscal year. Almost one fourth of foundations (24%) reported that they plan to increase international equities, but almost half (43%) said they planned to invest in alternatives.

More than three fourths (76%) of the foundations surveyed said they placed their hedge funds directly, and, on average, 7.8% said they use hedge fund managers.

Three hundred thirty four independent/private, community and operating charities, as well as social service, cultural and religious organizations whose fiscal year ended December 31, 2005, responded to the Commonfund Institute’s survey.