Posted on March 5, 2008

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Foundations Diversify Investments to Weather Rocky Economy

In an effort to help their assets grow during a volatile investing climate, many foundations have diversified their portfolios with alternative investment strategies such as hedge funds and investing in developing countries, the Baltimore Business Journal reports.

While nearly all of the twenty-five largest foundations in the Baltimore area saw their assets grow or stay at the same level during the 2007 fiscal year, most are keeping their expectations for 2008 modest. For many foundations, investing is the primary way they increase the assets they need to maintain or expand grantmaking. Though some small foundations have retained a traditional mix of stocks and bonds, many have moved into holdings such as commodities and real estate investment trusts, said James Dugan, chief investment officer of Baltimore-based Cavanaugh Capital Management.

The Horizon Foundation in Columbia, Maryland, for example, has shifted approximately 15 percent of its portfolio to alternative investments; it had virtually no such investments a year ago. During FY 2007, the Annie E. Casey Foundation produced an 8 percent return on its endowment while the Standard & Poor's 500 index realized a 5 percent return. Over the past few years, Casey has worked to build a portfolio with a "defensive bias," a mix of investments that can keep the foundation growing even during difficult economic times, said chief investment officer Burton Sonenstein.

Long stock-market downturns can affect foundations' ability to fund programs, but most of the major foundations in the Baltimore area expect the current market difficulties will not lead to program cuts. Foundations award grants at a level they can support based on the average results of their investments over a period of time. Although the Harry and Jeanette Weinberg Foundation has seen the value of its investments decline by nearly 6 percent over the past two months, it isn't making a lot of changes in its investment strategy, because its diversified $2.3 billion endowment should remain strong through a downturn, said treasurer Barry Schloss.

"Sometimes having some riskier investments within the portfolio reduces the overall risk," said Schloss. "We felt that if the market were to drop, alternative investments seem to hold on a little better or move in a different direction."

Sams, Rachel. “Foundations Shift Investing Strategy to Weather Bad Economy.” Baltimore Business Journal 2/29/08.

Primary Subject: Public Affairs
Location(s): Baltimore, Columbia, Maryland

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