Community foundations suffered steep investment losses last year, ending a five-year streak of positive returns and damaging their purchasing power, according to a new report from the Council on Foundations, an organization that represents grant makers.
A survey of 200 council members found a median return of -27 percent for community-foundation investments in 2008. The dismal performance brought down the industry’s median return over the 20 years ending last year to 7.9 percent.
Assuming a 5.5 percent spending rate, and taking into account the period’s average annual inflation of 2.8 percent, community foundations have fallen short of the returns needed to maintain their purchasing power, the report says.
But Monica Wroblewski, a spokeswoman for the Council on Foundations, says that both prior and subsequent investment gains cushion that blow, and that many “community foundations are in the fortunate position of having considerable liquidity to fund grant-making.”
She notes, too, that recovery already seems to be under way, with many community foundations reporting positive returns of at least 15 percent so far this year.
The survey on which the report is based included 200 community foundations with assets of at least $5-million, representing almost half of all such grant makers in the country. Survey respondents were asked to provide returns after the deduction of investment fees.
Among the survey’s key findings:Stocks accounted for just over 53 percent of community foundations’ investment portfolios last year, down from 61 percent in 2007. At the same time, the percent of portfolios taken up by fixed-income vehicles, such as bonds, rose by more than 4 percentage points, to 27.3 percent. The council’s report cautions, however, that shifts in the asset mix may reflect price drops in the equities market rather than a deliberate change in allocation policies. The size of community foundation holdings in international equities and alternative investments has expanded dramatically in recent years, according to the report. International stocks represented 16.5 percent of total portfolio assets in 2008, up from just over 6 percent in 1996. Alternative investments, such as hedge funds, accounted for more than 20 percent of foundation portfolios last year, up from less than 1 percent nine years earlier. Few of the community foundations surveyed (12 of the 188 that answered the question) use an investment screen for their primary endowment pool based on social and ethical considerations. Twenty-seven of the grant makers, however, have a separate pool for socially responsible investments, and 18 more said they are considering starting such a pool.
The Council on Foundation’s report, “2008 Investment Performance and Practices of Community Foundations” can be ordered from the council’s Web site, by faxing an order form to 703-879-0988, or by mailing an order form to Council on Foundations, P.O. Box 25521, Baltimore, Md., 21263. It costs $50 for members and $65 for non-members.