Foundation and Operating Charity Investments Disappointed in 2011

The nonprofit sector experienced negative investment returns in fiscal 2011 for the first time in three fiscal years, according to two companion studies released this week by Commonfund Institute.

The 179 independent, private and community foundations participating in the 2012 Commonfund Benchmarks Study of Foundations reported an average total net return of -0.9%. This compared with 12.5% in FY2010 and 20.9% in FY2009.

At the same time, 68 operating charities—comprising cultural, religious and social service institutions—participating in the 2012 Commonfund Benchmarks Study of Operating Charities had an average net return on investment funds of -1.8%, compared with 11.6% in FY2010 and 21.5% in FY2009.

Commonfund (http://www.commonfund.org/Pages/default.aspx) said the 2011 results were the first time since FY2008 that nonprofits had reported negative returns. The return that year was a staggering -26%.

The three-year average return for participating foundations was 10.5%, a big improvement from last year’s -0.3%, thanks to the fact that the FY2008 return was no longer part of the calculation.

However, that return did enter the five-year calculation, resulting in a net return of 1.5% compared with 4.2% in last year’s study. For the last 10 years, participating foundations reported an average annual return of 5.2%, little changed from last year.

For operating charities, three-year returns averaged 10%, up from 0.1% the year before; five-year returns averaged 1.8%, down from 4.7% last year; and the 10-year returns averaged 5.5%, up from 4.9% last year.

John Griswold, executive director of Commonfund Institute, said 2011 was a frustrating year for foundations and operating charities. “On top of the negative investment returns, the addition of inflation and investment management costs means that these institutions fell a little farther behind financially, even before spending for mission support.

“It’s fortunate that this year was preceded by the two strong years of FY2009 and FY2010. We are also encouraged by the fact that gifts and donations to operating charities rose again in FY2011, even though giving remained less than robust.”

Twenty-six percent of operating charities reported an increase in gifts received in FY2011, up from the 10% reporting an increase the year before. Just 12% of study participants reported a decline in gifts received, compared with 17% in FY2010. Forty-nine percent reported no change.

Spending last year strengthened among foundations, but slipped a bit among operating charities. Half of participating foundations reported higher spending in dollars in FY2011, compared with 38% the year before.

Thirty percent of operating charities reported increased spending in dollars, up from 25% in FY2010.

Foundation Investments

The Foundation Study’s participants comprised 133 independent/private foundations and 46 community foundations, representing a combined total of $100.4 billion in assets.

Independent/private foundations reported average net investment returns of -0.7%, while community foundations reported average returns of -1.4%.