Private and community foundations saw 2017's double-digit investment gains go in the opposite direction last year, according to a report issued Thursday by the Council of Foundations and Commonfund.
Private foundations reported an average 2018 return of -3.5% net of fees, down from average gains of 15% in 2017, while community foundations reported an average return of -5.3% compared with 15.1% in 2017.
The 2018 returns represented the third time in the past 10 years where flat or negative annual returns were reported, and the lowest returns of that decade. By contrast, 2017 represented the third time over the same period that average returns exceeded 15%.
The 2018 results reflected "a particularly poor fourth quarter," the study found.
The good news is that trailing 10-year returns rose considerably, to 8.4% up from 5.5% the previous year for private foundations, as 2008 investment losses no longer were calculated.
"The short-term news is disappointing. What is good news is that spending rates are steady and the 10-year returns are improved. That is a result of us finally coming out of the aftermath of the crisis," said Cathleen Rittereiser, executive director of Commonfund Institute, in an interview.
The largest private foundations in the study — those with $500 million or more in assets — came the closest to breaking even, with an average return of -0.2% compared to -4.4% for community foundations of the same size. The report attributes that in large part to private foundations having lower allocations to non-U.S. equities and U.S. equities, which were the two lowest-performing asset classes in 2018.
In 2018, venture capital generated a 13.3% return for private foundations and 9.6% return for community foundations, while private equity produced a 9.5% return for private foundations and a 10.6% gain for community foundations.
The return gap between private and community foundations widened to 180 basis points in 2018.
The 2018 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations covers 236 participating foundations with combined assets of $89.3 billion.
