Nearly a decade after the financial crisis, foundations with an appetite for alternative investments have enjoyed a steady growth in assets.
Assets of the 49 largest private foundations reached $226.3 billion in tax filing year 2016. That is up 3.5% from $218.6 billion the year before and up 29.3% from $175 billion in 2007.
And "almost all of them want to know what they can do with alternatives," said Steven Charlton, partner and director of consulting services for NEPC LLC in Boston.
Since 2007, foundations have significantly increased their allocations to "other" investments — typically alternatives such as private equity, hedge funds and real estate — according to the tax filing data. In 2007, those investments added up to $70.6 billion, or about 40% of total assets. In 2016, such investments had grown to $136.3 billion, or about 60% of total assets.
By contrast, allocations to corporate stock dipped to $75 billion in 2016, from $84.6 billion in 2007, and bonds had an even steeper dive, to $3.8 billion from $9 billion over the same period.
The $6.7 billion David and Lucille Packard Foundation in Los Altos, Calif., nearly tripled its alternatives portfolio to $6.1 billion over the past seven years, while the $3.9 billion Rockefeller Foundation in New York doubled that asset class in the same period.
Pensions & Investments looked at the 50 largest private foundations, but the $3.3 billion Carnegie Corporation of New York foundation was not included in aggregate totals as it had not yet filed for tax year 2016.
For private foundations interested in being around for a long time, "alternatives are an easy conversation for them," and for their sophisticated trustees, said Mr. Charlton, whose firm is spending more time evaluating the number of alternative investments available. "There is a lot of interest across the board in new (types of alternative strategies) being discovered. It takes a lot of kissing frogs," he said.
"It comes up in every single meeting," agreed Margo Cook, Chicago-based president of Nuveen Advisory Services."People are on the spectrum somewhere."
While more traditional counterparts, such as corporate stocks and government bonds, are basically unchanged or experiencing slight dips as a percentage of foundation portfolios over the past decade, they, too, have enjoyed strong performance in recent years.
That's helped bolster overall returns for foundations.
According to the 2017 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations, private and community foundations averaged returns of 15% and 15.1%, respectively, in fiscal year 2017. The study of 143 private foundations and 81 community foundations, with a total of $104.4 billion in assets, represents the strongest performance in the past four years across the board, said Deborah Spalding, Commonfund deputy chief investment officer and managing director.
Among liquid investment strategies, non-U.S. equities had the strongest returns, at 26.4%, for private foundations, according to the study. Among alternative strategies, private equity was the top performer for private foundations, at 10%, followed by 9.2% for private real estate and 7.7% for marketable strategies including hedge funds, absolute return, long/short, event-driven and derivatives.