U.S. foundations and charities increased their average alternatives allocation to 18% of total investments in 2004, from 14% in 2003, according to data from the Commonfund Benchmarks Study released today. Non-profits with more than $1 billion in assets significantly increased their alternatives exposure, to 21% of total assets in 2004 from 14% the previous year. Non-profits with between $101 million and $500 million in assets increased their average alternatives allocation to 16%, from 14%. Smaller entities - with between $50 million and $100 million - had an average alternatives allocation of 12%, up from 9%.
The performance of all U.S. foundations and operating charities dropped by nearly six percentage points on average in 2004, to 11.4%, according to the study. The top performers were the smallest institutions, with an average return of 11.8%. Non-profits between $101 million and $500 million returned an average 11.1%. By contrast, the largest foundations returned an average 10.7% in 2004.
The smallest non-profits outperformed all other organizations in 2004, thanks, ironically, to lack of diversification, said John S. Griswold Jr., Commonfund's executive director. "Smaller foundations were in general more exposed to garden-variety domestic and international stocks and less to alternative investments like hedge funds, and that helped them in last year's market," he said.
Commonfund surveyed executives of 317 American foundations with a combined $167 billion in assets.