Investment Returns Down at Private, Community Foundations in 2014

Although investments by private and community foundations did not produce a banner year in 2014, many institutions increase their mission-related spending, according to a new report.

Private foundations reported a 6.1% average return for fiscal 2014, ended Dec. 31, down from 15.6% for fiscal 2013.

Community foundations reported an average return of 4.8%, down from 15.2% for the same periods. All return data were net of fees.

The results were based on the third joint Council on Foundations–Commonfund Institute survey of 142 private foundations and 102 community foundations released Thursday.

The participating institutions were segmented by size: those with more than $500 million in assets, between $101 million and $500 million and less than $101 million.

The report said the overall return figures for 2014 reflected lower year-over-year returns from investments in domestic and international equities and certain alternative strategies. Only fixed income generated significantly higher returns.

Data from the participating institutions showed that private foundations of all sizes enjoyed higher returns than their community foundation counterparts.

Among the biggest ones, private foundations produced a 7.1% return, while community institutions had an average return of 4.9%. The same pattern played out among smaller private and community foundations.

Moreover, the pattern held for three-year, five-year and 10-year net returns.

The report said 59% of private foundations and 61% of community foundations reported higher grant making or mission-related spending in dollar terms in 2014: an average rate of increase was 21.1% for private foundations and 33.9% for community foundations.

"The data also provide important context for the financial story of foundations following the severe downturn of FY2008, when asset values declined in the range of 25%," Commonfund's executive director John Griswold said in a joint statement with Vikki Spruill, president and CEO of the Council on Foundations.

"The declines of that time have held down the trailing 10-year average return at just 6.3%, despite double-digit gains in more recent years."

According to Spruill, recent investment gains have enabled foundations to fund mission-related grant making, while also keeping pace with inflation and the cost of managing investment programs.

The report said the average annual effective spending rate for 2014 was 5.4% among private foundations, down slightly from the previous year's 5.5% and reflective of the rapidly rising markets of recent years.

The average annual effective spending rate among community foundations was unchanged at 4.8%.

FY2014 Return Data

Domestic equities produced the highest return in FY2014, at 10.4% for private foundations and 9.8% for community foundations.

Alternative strategies followed, generating a 4.4% return for private foundations and 3.7% for community foundations, fixed 3.8% for private foundations and 3.2% for community foundations and short-term securities/cash/other an equal return of 0.2%.

International equity returns were down 0.9% for private foundations and down 2.7% for community foundations.

Among alternative strategies, venture capital generated a 22% return and distressed debt 19.3%, according to the report. Private equity real estate returned 12.4% for community foundations and 11.7% for private ones.

Marketable alternative strategies, including hedge funds, were less productive, returning 4% for private foundations and 2.7% for community foundations.

Commodities and managed futures came up losers, down 12.1% for both types of foundations.

Following are allocations as of the end of 2014 for private and community foundations, respectively: