Private foundation assets surge

Endowments of private foundations generated investment returns of 12 percent in 2012, net of fees, up from a loss of 0.7 percent in 2011, a new study  says.

Among 140 foundations studied, those with assets between $101 million and $500 million posted the highest return, 12.4 percent, compared to returns of 11.9 percent for those with assets over $500 million, and 11.4 percent for those with assets under $101 million, says the 2012 Council on Foundations–Commonfund Study of Investments for Private Foundations.

Three-year returns averaged 7.9 percent in 2012, down from 10.3 percent in 2011, reflecting the fact that strong returns in 2009 no longer are part of the calculation, the study says.

Five-year returns averaged 1.8 percent, up from 1.4 percent a year ago, reflecting the fact that losses in 2008, the year the economy collapsed, still are part of the calculation.

And 10-year returns average 7.9 percent, up from 5.2 percent a year ago.

The effective “spending rate” among participating foundations, or the amount spent on mission divided by the market value at the start of the year, slipped to 5.4 percent in 2012 from 5.5 percent a year earlier.

That is a normal result in a year with strong investment returns, the study says, because many institutions use a “moving-average” formula to calculate market values for the purpose of determining spending, and the results “can lag behind a rapidly rising market.

Foundations with assets over $500 million posted the lowest effective spending rate, 5.2 percent, compared to 5.4 percent for those with assets between $101 million and $500 million, and for those with assets under $101 million

Among all participating foundations, 34 percent reported an increase in their spending rate, 22 percent reported a decrease, 14 percent reported no change, and 30 percent gave no answer or were not certain.

Forty-seven percent of participating foundations reported spending more in dollars, while 32 percent reported spending less, 15 percent reported no change, and 6 percent did not answer or were not certain.

International equities gained 17.5 percent, more than any other asset class, followed by domestic equities, 16.3 percent; fixed income, 7.1 percent; alternative strategies, 7 percent; and short-term securities, cash and “other,” 1 percent.

At Dec. 31, 2012, asset allocations at participating foundations included domestic equities, 26 percent, up from 23 percent a year earlier; fixed income, 11 percent, down from 13 percent; international equities, 16 percent, up from 12 percent; alternative strategies, 42 percent, down from 44 percent; and short-term securities, cash and “other,” 5 percent, down from 8 percent.

Todd Cohen

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