The top-performing foundations and endowments in 2012 had the same two things in common — higher equity exposure and lower allocations to alternatives — according to a spotlight report from the Wilshire Trust Universe Comparison Service.
The report focused on finding correlations among the top-performing foundations and endowments for last year. The top 5% of the universe had a median equity allocation of 70%, compared with only about 55% for the next 5%, and 46% for the bottom 75%. The universe consists of 283 foundations and endowments that submitted full asset allocations to TUCS.
Robert Waid, managing director at Wilshire Associates Inc., Santa Monica, Calif., said it was expected that plans with higher equity allocations would be the top performers for the year.
“The main thing that surprised me was that the higher performing plans also had better performance within equities than the markets,” Mr. Waid said.
More than 58% of the top-quartile plans have U.S. equity returns better than the 16.06% the Wilshire 5000 index returned. Mr. Waid said that implies the plans were either “really good at picking managers or had a higher exposure to better performing sectors” and small-cap stocks. The Wilshire U.S. Large-Cap index returned 15.74% while the Wilshire U.S. Small-Cap index was up 18.76%.
The top 5% of plans had a median U.S. equity return of about 19%, compared with just 14% for the bottom 75%.
Mr. Waid did not know the breakdowns of the types of equity in which the plans invested, but said in general, foundations and endowments are likely to take on more risk than other entities. Small-cap equities are more volatile, but often outperform in up markets.
Typical plans in all performance categories had average and median fixed-income allocations of just above 20%. Mr. Waid said most plans outperformed fixed-income benchmarks, but were similar when compared with each other and therefore was not a reason for certain plans' overall outperformance. Real estate had an average 1.5% allocation and did not significantly differentiate plans, Mr. Waid added.
However, the exposure to alternatives directly related to how plans performed for the year. The top 5% of plans had an allocation of less than 10% compared with more than 30% for the bottom 75%. Hedge funds had a median return of 7.2% for the year; private equity, 5.9%; and other, 9.1%.
The median return of all foundations and endowments was 11.89%, the eighth positive year out of the last 10 years and the sixth with double-digit positive returns. The 10-year median was 7.56%. The worst performing plan in 2012 returned 4.8%.
