Private and community foundations reported investment returns of 6.4% and 7.3% for fiscal year 2016, ended Dec. 31, according to data gathered by the Commonfund and the Council on Foundations.
Both returns were higher than those reported in fiscal 2015: 0.0% for private foundations and -1.8% for community foundations. Returns were lower in fiscal 2014 as well: 6.1% and 4.8%.
Private foundations’ effective spending rate in fiscal 2016 rose to 5.8% from 5.4% the previous year, while that of community foundations dipped to 4.7% from 4.8% in fiscal 2015.
“Investment returns for 2016 are encouraging, but deliver a mixed message,” the leaders of the Council on Foundations and the Commonfund, Vikki Spruill and William Jarvis, said in a joint statement.
“It is heartening to see improved investment performance, especially given its implications for ongoing mission support. But with trailing 10-year returns averaging 4.7% for participating private foundations and 4.6% for community foundations, long-term returns are not sufficient to maintain the corpus of foundations’ endowments after spending, inflation and costs.”
Spruill and Jarvis said community foundations’ returns just about equaled their 2016 effective annual spending rate, but did not offset the effects of costs and inflation.
As for private foundations, their 10-year investment returns were 110 basis points lower than their 2016 effective spending rate. “If continued,” Spruill and Jarvis said, “this could be a concern over the long term.”
According to the study, foundation fiduciaries appear to be adapting to the potential for a lower return environment by moderating their long-term return expectations.
The average long-term investment objective among the largest private foundations fell to 6.9% from 7.7% in 2015, while among similarly sized community foundations it remained steady at 7.1%.