Private foundations are enjoying several years of good returns for their investment portfolios, allowing them to focus more on the things that other institutions do, such as diversifying their investments and looking at outsourcing.
Of the 46 largest private foundations filing annual reports with the Securities and Exchange Commission for the year ended Dec. 31, 2013, combined assets of $182.3 billion exceed pre-recession levels for the first time and were 12.5% higher than the end of 2012. Assets totaled $162.6 billion at the end of 2007 before dropping to $122 billion the following year. Some of the increase can be traced to foundations that were not around in 2007, such as the $1.48 billion Laura and John Arnold Foundation in Houston, or ones with marked increases in funding in recent years, like the $5.3 billion Bloomberg Family Foundation Inc., New York, which is up from $975 million in assets at the end of 2008.
What continues to set them apart from other institutional investors — in addition to the fact they are usually very private about their investment decisions — is that they start with a 5% handicap when setting their investment return goals.
To keep their tax-exempt status, private foundations must each year make charitable distributions in prescribed amounts that generally equal 5% of investment assets. When you add in investment fees, administrative costs, excise taxes and inflation, “suddenly you are looking at 8% to 9% a year,” said William F. Jarvis, managing director, Commonfund Institute, Wilton. Conn., the research and educational arm of institutional investment manager Commonfund.
For many of the biggest ones, like the $11.5 billion Ford Foundation, New York, the $6.4 billion David and Lucille Packard Foundation in Los Altos, Calif., and the $5.9 billion Andrew W. Mellon Foundation in New York, the story is more about significant asset reallocations, particularly into less traditional asset classes like private equity, hedge funds and real estate. From 2008 to 2013, The Ford Foundation more than tripled its allocation to those other classes, to $9.78 billion from $3.45 billion, as did the Packard Foundation, increasing to $4.89 billion from $1.48 billion. The Mellon Foundation doubled its alternatives to $4.2 billion from $2.4 billion over the same time period.
“Private foundations clearly made a big jump in alternatives exposure. It's become more reasonable to do,” said Christopher Bittman, partner and chief investment officer of Perella Weinberg Partners' Agility OCIO business in New York, whose largest private foundation client is the $860 million Rockefeller Brothers Fund, New York.