Investment returns of private and community foundations dipped to their lowest point in a decade last year, according to a newly released study from the Council on Foundations and Commonfund.
Participating private foundations reported an average calendar 2018 return of -3.5% (net of fees), versus 15% gains for 2017. Participating community foundations' average return was -5.3% for 2018, compared with 15.1% for 2017.
This was the third time in the past 10 years that participating organizations reported flat to negative annual returns. In addition, 2017 represented the third time over the same period that average participant returns exceeded 15%.
Compared with 2017, the effective spending rate last year remained unchanged for private foundations at 5.7%, but declined moderately to 4.6% from 4.8% for community foundations.
Gift-giving was mixed in 2018. Fifty-five percent of community foundations reported an increase in gifts and donations, up from 49% the previous year. However, this was offset by 36% of community foundations reporting a decrease, well above the 22% that did so in 2017.
The report said the jury was still out on whether, and to what extent, the tax overhaul may have affected charitable giving in 2018. One major study found that giving was flat last year.
"Financial markets were choppy in 2018, at times performing well but at others — particularly the fourth quarter — they reflected a range of investor concerns," Mark Anson, president and chief executive of Commonfund, said in a statement. The uncertain environment ultimately hurt many portfolios, Anson said.
He noted that an encouraging sign for participating foundations was the increase in trailing 10-year returns to an average of 8.4% for private foundations and 8.2% for community foundations, which compared with 2017's trailing 10-year returns of 5.5% and 5.3%.
"The higher returns — in excess of 8% — are needed to maintain the corpus of foundations' endowments after spending, inflation and costs," Anson said.
