Foundations saw total assets in their investment portfolios plunge an average 26% in 2008, but a surprising number responded by stepping up spending rather than cutting back on awarding grants, according to Commonfund Institutes latest annual benchmarking study.
The study of 221 independent/private foundations and 69 community foundations with combined assets exceeding $131 billion marked a dramatic reversal from the 9.9% average asset gain foundations enjoyed for 2007 and the 13.7% advance for 2006.
The market turmoil of 2008 left three-year foundation returns at an annualized -3.1%, compared to the 10.8% annualized return for the three years ended Dec. 31, 2007.
Fixed income was the only asset class with a positive return in 2008, at an average 0.6%, lifting foundations average bond allocation to 16% at year-end from 15% the year before.
The 36.3% investment loss for domestic equity holdings left their average allocation in foundation portfolios at 27%, down from 32%. A 41% decline in international equities valuations lowered their allocation to 15%, from 20%.
Alternative investments, with a relatively modest 16.4% loss, saw their weight in foundation portfolios jump to 36% from 28%.
In a news release, John S. Griswold, Commonfunds executive director, said that sharp increase in alternative allocations reflected the challenges foundations faced in rebalancing out of illiquid strategies.
The study found that the average effective spending rate dollars spent divided by foundations asset value at the start of the year actually rose to 5.8% from 5.5% in 2007. For the 45% of 290 foundations surveyed reporting increased outlays, spending rose by an average 20.4%. By contrast, 31% reported lower spending.