For the second consecutive year, private and community foundations experienced lower investment returns in the 2015 fiscal year, the Council on Foundations and Commonfund Institute reported this week.
The effective spending rate for both foundations, however, remained unchanged from the previous year.
The 2015 fiscal year report comprised 228 foundations with combined assets of $101 billion. Participating foundations had endowment sizes ranging from less than $101 million to more than $500 million.
Private foundations reported an average return of 0% for the 2015 fiscal year (Jan. 1 to Dec. 31), down from 6.1% reported for fiscal 2014. Community foundations’ average annual return was down 1.8%, compared with a 4.8% gain for the previous fiscal year.
The effective spending rate averaged 5.1% for all participating foundations.
Spending in dollar terms rose in 2014. Across the three size cohorts, some 50% of private foundations reported increased spending in dollars, while 50% to 65% of community foundations did so.
“The message of this study is clear,” the leaders the Council on Foundations and Commonfund Institute Vikki Spruill and William Jarvis said in a joint statement. “Foundations are continuing to invest in their missions and maintain consistent spending.”
Spruill and Jarvis noted, however, that the study raised the question what the long-term effect on endowment values would be if foundations did not experience better near- and midterm investment returns.
“Two years of low investment results have reduced foundations’ trailing 10-year returns to the 5.1% to 5.9% range,” they said. “Without higher long-term returns, it will be difficult for foundations to maintain their endowments once annual spending, inflation and investment management costs are taken into account.”
Adjusting to Lower Returns
Both types of foundations have realized lower investment returns for two years running, after reporting robust returns in fiscal 2013. That year, private foundations had an average return of 15.6% net of fees, while community foundations reported an average return of 15.2% for the same period.
Returns for both foundation types were lower in fiscal 2015, compared with the previous year.
International equities produced the lowest return last year, down 4.5% for private foundations and down 5.1% for community foundations.
Domestic equities swung sharply from positive to negative, down 0.8% for private foundations and down 0.7% for community ones from 10.4% and 9.8% in fiscal 2014.