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Charities’ Portfolios Rose 15% in FY2013: Commonfund

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Sixty operating charities with combined assets of $24.3 billion reported investment returns of 15.1% in fiscal 2013, compared with an average 11.7% return the previous year, Commonfund Institute said this week in the announcing the results of a study.

Twenty-three cultural entities, 19 religious institutions and 18 social service organizations participated in the study for fiscal 2013, ended Dec. 31. Return data are net of fees.

Three-year net returns for participating operating charities averaged 8.5%, up from 7.6% a year ago. Trailing five-year returns averaged 11.6%, well ahead of 2.2% a year ago, after FY2008’s negative 25.8% return dropped out of the five-year calculation. Ten-year returns averaged 7.1%, down from 7.6% last year. 

Following are participating charities’ FY2013 returns:

  • Domestic equities: 31.1%
  • International equities: 17.3%
  • Alternative strategies: 10.5%
  • Short-term securities/cash/other: 0.0%
  • Fixed income: -0.7%

Within the broad alternatives category, distressed debt produced a 15.6% return. This was followed by marketable alternative strategies at 13.5% and by private equity at 10.3%.

Venture capital and private equity real estate (non-campus) both generated a return of 9.9%, while energy and natural resources returned 5%. Only commodities and managed futures in the alternatives sector produced a loss, 7.1%.

Commonfund Institute reported that the 2013 returns profile differed in several ways from last year’s. Like this year, traditional equities led the way in FY2012, with nearly equal returns for international equities of 16.9% and 16.7% for domestic equities.

Fixed income, however, made a positive contribution in 2012, with a 7.4% gain.

Having posted a 7.1% return in 2012, alternative strategies improved 340 basis points year over year, while short-term securities/cash/other gained 1.1% in 2012; they were flat in 2013.

“What is most notable about returns in FY2013 is that both more diversified and less diversified portfolios produced good returns and risk was generally muted,” Commonfund Institute’s executive director John Griswold said in a statement.

“We attribute much of this to the record low interest rate investment environment created by the Federal Reserve, although we will now have to wait and see how the withdrawal of monetary support affects investment portfolios.”

As of December 31, 2013, participating institutions’ asset allocations looked like this, with FY2012 allocations in parentheses:

  • Domestic equities: 25% (22%)
  • Fixed income: 20% (22%)
  • International equities: 20% (19%)
  • Alternative strategies: 28% (31%)
  • Short-term securities/cash/other: 7% (6%)

Spending, Donations, Debt

Forty-five percent of participating operating charities reported higher spending in dollars this fiscal year, compared with 48% in FY2012. Conversely, only 18% of charities decreased spending in dollars this year, versus 25% that did so a year ago.

Twenty-seven percent of participants reported no change year over year, up from last year’s 17%.

Thirty-seven percent of participating operating charities reported receiving increased donations this year, up from 32% in FY2012. The median increase this year was 30% versus 50% last year.

Twenty percent reported a decrease in gifts compared with 30% a year ago, with the median decrease being 17.4%. Thirty-two percent reported no change in gift flow compared with last year’s 25%.

Operating charities in the study continued their deleveraging trend of recent years. For FY2013, the 24 organizations that reported they carried debt had a debt level of $39.8 million and a median debt level of $10.7 million. By comparison, last year’s average debt was $50.4 million and the median debt was $13.8 million.

Of 22 responding institutions with debt, 14% said they had increased their load in FY2013, while 50% said they had decreased it. Thirty-six percent reported no change.

Resources, Management and Governance

The number of full-time professional operating charity staff members devoted to investments averaged 1.5 full-time equivalents versus last year’s average of 1.4.

Twenty-two percent of study participants said they had a chief investment officer, down from 25% a year ago.

Eighty-two percent reported using a consultant, all but unchanged from last year.

Twenty-two percent of respondents said they had substantially outsourced the investment function, while another 12% said they are considering substantially outsourcing the function.

Ninety-seven percent of study participants reported having a policy for handling conflicts of interest, down one percentage point since last year. The average number of voting members on investment committees declined this year to 7.5 from last year’s 8.1.

The average number of investment committee members who were investment professionals was 4.9 versus 5.0 last year, while those with alternative strategies experience rose to 3.5 this year from 3.0 a year ago.


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