Posted on June 26, 2012

Investment Returns for Foundations, Operating Charities Turn Negative in 2011, Studies Find

Investment returns for foundations and operating charities turned slightly negative in fiscal year 2011 after rising by more than 10 percent in each of the last two years, two studies from the Commonfund Institute find.

The average 2011 total net return reported by the 179 independent, private, and community foundations participating in the 2012 Commonfund Benchmarks Study was -0.9, compared with 12.5 percent in 2010 and 20.9 percent in 2009, while the sixty-eight operating charities that participated in the survey reported an average net return on invested funds of -1.8 percent, compared with 11.6 percent in 2010 and 21.5 percent in 2009.

The average three-year return for foundations that participated in the survey was 10.5 percent, a significant improvement over last year's -0.3 percent, reflecting the fact that the -26.0 percent return for 2008 was no longer part of the calculation. However, the 2008 number remains in the five-year calculation, which fell to 1.5 percent, down from 4.2 percent in last year's study. For the last ten years, participating foundations reported an average annual return of 5.2 percent, little changed from the average of 5.1 percent reported last year. For operating charities, three-year returns averaged 10.0 percent in the most recent survey, up from 0.1 percent the year before; five-year returns averaged 1.8 percent, down from 4.7 percent in last year's survey; and ten-year returns averaged 5.5 percent, up from 4.9 percent.

According to the 2012 Commonfund Benchmark Study of Operating Charities, 26 percent of operating charities that participated in the survey reported an increase in gifts received in 2011, a marked improvement over the 10 percent that reported an increase in gifts in 2010, while just 12 percent of participating charities reported a decline in gifts, compared with 17 percent in 2010; 49 percent reported no change. The study also found that 50 percent of participating foundations reported a higher effective spend rate in 2011, compared with 38 percent in 2010, while just 25 percent said they had reduced their spend rate, down from 43 percent in FY2010.

According to John S. Griswold, executive director of Commonfund Institute, 2011 was "a frustrating year" for foundations and operating charities. "On top of the negative investment returns, the addition of inflation and investment management costs means that these institutions fell a little farther behind financially, even before spending for mission support," said Griswold. "It's fortunate that this year was preceded by the two strong years of FY2009 and FY2010. We are also encouraged by the fact that gifts and donations to operating charities rose again in FY2011, even though giving remained less than robust."