Foundations and charities reported investment returns of roughly 12% in 2010, below the 21% range reported in 2009, with private equity real estate the only asset class that sustained losses, according a Commonfund Institute survey.
Foundations had an average investment return of 12.5%, while operating charities returned an average 11.6% for the 2010 calendar year. Foundations returned an average 20.9% in 2009, and operating charities returned an average 21.5% for the same year.
According to a report on the survey, the asset class consisting of energy and natural resources, commodities and managed futures was the best performer, returning 22.1% for the year. Following were domestic equities, at 17.7%; distressed debt, 15%; international equities, 14.5%; private equity 11.3%; alternative strategies, 10.6%; venture capital, 9.4%; short-term securities and cash, 9.2%; marketable alternative strategies, 9.1%; fixed income, 8.1%; and private equity real estate, -2.5%. Other category returned 10.6%.
The average asset allocation for foundations at year-end 2010 was 38% alternatives, 26% domestic equities, 16% international equities, 13% fixed income and 7% short-term securities, cash and other investments.
John S. Griswold, Commonfund executive director, said in a telephone interview that private foundations typically do not receive additional donations above money used to establish themselves and must use investments for both normal operating costs and to regain assets lost to the financial crisis.
“Many are asking, ‘What is the opportunity set in the markets now for higher returns without taking inappropriate risks?' ” he said. “It's a challenge that all long-term investors have to face, particularly when there is no new money coming in.”
He noted that the spending rate for most foundations was at 5.8%.
The Commonfund Benchmarks Study of Foundations consisted of results from 175 independent and private foundations and the Commonfund Benchmark Study of Operating Charities consisted of 69 charities.