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New Survey Focuses on Unique Needs of Smaller Foundations

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A new survey from Captrust Financial Advisors of some 150 public and private foundations finds that 73% of organizations had return expectations in the 5% to 8% range, and 11% expressed return expectations of greater than 8%.

For the five- and seven-year periods ending Dec. 31, 2017, the median net-of-fees return reported was 7.2% and 6.9%, which was reasonably in line with expectations.

However, the 10-year median return reported was only 5.1%, well below cited return expectations, owing to the 2008 financial crisis.

The survey focused on smaller organizations, some 70% of which had less than $50 million in assets. Sixty-three percent of respondents identified their organizational mission as charitable, most often tied to health and social issues.

“We saw a need for a nonprofit survey to provide insights into the $10 million to $100 million segment, which we think is underserved and has unique needs,” Captrust’s asset-liability practice leader Grant Verhaeghe said in a statement.

“The survey statistically validated a number of things we are hearing from clients and uncovered several issues that deserve more conversation. This segment of the market is very fragmented, so it’s not surprising to see so much inconsistency.”

Three-quarters of respondents defined their investment objectives as “benchmark relative.” Forty-three percent said it was inflation plus spending plus expense, and 26% said absolute return.

Respondents’ most common definition of risk was volatility of investable assets, while the least common one was volatility of spending. About half of respondents expressed concern about declines in spending due to portfolio losses, but not to volatility itself.

Forty-four percent of respondents said they were willing to lose only up to 5% of their portfolio values, while 56% were willing to lose 5% or more to accomplish their return objective. Captrust noted that based on their reported asset allocation, most respondents would have historically experienced far greater losses than their expressed willingness indicated.

Asset Allocation

The survey found considerable variation in asset allocation among respondents, and this was not necessarily tied to return and risk objectives. Indeed, the most conservative responses with respect to willingness to experience loss had more aggressive asset allocations that those with more moderate risk tolerance.

Of the respondents that said they allocated to alternatives, 39% cited real estate, 32% hedge funds, 25% commodities and 24% private equity.

Among organizations that intended to make a change to their domestic equity allocations, those expecting to reduce the allocation outnumbered those planning to increase their exposure by greater than a 2 to 1 margin. Conversely, among foundations planning to alter their international equity weighting, those increasing their allocation outnumbered those decreasing by more than a 5:1 margin.

Seventy-four percent of respondents said they had an allocation to indexed strategies in domestic equity, 56% in fixed income and 45% in international equity.

The survey found that endowments and foundations had a bias toward active management; however, there were instances where organizations maintained a 100% indexed investment structure.

Among respondents that said they were likely to change their current approach, there was a slight inclination toward increasing index exposure. Less than half of respondents employed tactical asset allocation in their portfolios.

Asked whether their organization intended to increase, maintain or reduce their allocation to environmental, social and governance investments, 34% said they were undecided. Forty-nine percent indicated that they had not considered allocating to ESG when asked for the biggest obstacle for investing.

For those respondents that said they were doing ESG investing, their use was most prevalent in domestic and international equity and more likely to be actively managed. Fifty-six percent of investors said ESG factors were based on positive identification rather than negative screening.


A majority of survey respondents reported that they had formal documented policies on investment, spending and conflict-of-interest, and documented responsibilities for committees/boards. However, 12% said they did not maintain a formal spending policy, and 55% of respondents maintained their spending policies separate from their investment policies.

Only 46% of respondents reported an overlap between committees responsible for overseeing spending and investments — suggesting, Captrust said, that there is room for improved communication on spending policy relative to investment results.

In addition, there appear to be opportunities for board-level investment and fiduciary training as well as new board member orientation. The most common sources cited for professional development for staff and board members were attending conferences and information networking with peer organizations.

Seven in 10 respondents said they had only one full-time or part-time investment-focused staff member. Finance/investment committee terms generally ran for two to three years. Most organizations limited members to two terms, and eight in 10 staggered their terms.


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