Charities post investment losses after two strong years

Investment returns for foundations and operating charities fell slightly in fiscal 2011 after posting double-digit growth each of the previous two years, two new studies say.

Grantmaking and gifts to charities were mixed, say the 2012 Commonfund Benchmark studies of foundations and of operating charities.

The 179 independent/private and community foundations, with a combined total of $100.4 billion in assets, posted an average total net loss in fiscal 2011 of 0.9 percent, net of fees, compared to gains of 12.5 percent in fiscal 2010 and 20.9 percent in fiscal 2009.

The 68 operating charities surveyed, with a combined $24.2 billion in assets, posted an average net loss of 1.8 percent on investment funds, compared to  gains of 11.6 percent in fsical  2010 and 21.5 percent in fiscal 2009.

The 2011 results marked the first time since fiscal 2008 that foundations and operating charities reported negative returns.

“2011 was a frustrating year for foundations and operating charities,” John S. Griswold, executive director of the Commonfund Institute, which sponsors the studies, says in a statement. “On top of the negative investment returns, the addition of inflation and investment-management costs means that these institutions fell a little farther behind financially, even before spending for mission support.”

Participating foundations posted an average three-year return of 10.5 percent, compared to a loss of 0.3 percent in 2010, reflecting the fact that the average loss of 26.5 percent for fiscal 2008, the year the capital markets collapsed, no longer was part of the calculation.

But the five-year net return fell to 1.5 percent from 4.2 percent a year ago, while the 10-year average annual return totaled 5.2 percent, down only slightly from 5.1 percent.

For operating charities, three-year returns averaged 10 percent last year, up from 0.1 percent a year earlier, while five-year returns averaged 1.8 percent, down from 4.7 percent last year, and 10-year returns averaged 5.5 percent, up from 4.9 percent last year.

Fifty percent of foundations surveyed reported higher spending in dollars in fiscal 2011, up from 38 percent in 2010, with just 25 percent reporting spending fewer dollars, down from 43 percent in fiscal 2010, and 13 percent reporting no change.

Among operating charities, 30 percent reported spending more dollars in 2011, up from 25 percent in 2010, while 35 percent reported spending fewer dollars, down from 49 percent in 2010, and 22 percent reporting no change, up from 19 percent in 2010.

Twenty-six percent of operating charities surveyed reported an increase in gifts received in 2011, up from 10 percent that reported an increase in 2010, while just 12 percent reported a decline in 2011, down from 17 percent in 2010, with 49 percent reporting no change.

Independent/private foundations reported average net investment losses of 0.7 percent, while community foundations reported average net losses of 1.4 percent.

The highest return for foundations, 5.7 percent, came from fixed-income assets, while the lowest, a loss of 12.2 percent, came from international equities.

The average annual effective spending rate for participating foundations was 5.5 percent, down from 5.8 percent in 2010, while the average debt load fell to $47.3 million from $67.4 million.

Among operating charities, cultural and religious organiztions averaged a loss of 1.8 percent, while social-service organizations averaged a loss of 1.9 percent.

Fixed-income assets produced the highest return for operating charities, an average gain of 5.2 percent, while the lowest, a loss of 10.1 percent, came from international equities.

Todd Cohen

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