Trends in Private Foundation Investment Looks at the Portfolios, Performance, and Preferences of Foundations with Less than $50M
FAIRFIELD, Conn., Nov. 14, 2014 (GLOBE NEWSWIRE) -- Foundation Source, the nation's largest provider of comprehensive services for private foundations, today released a new report looking exclusively at the investment behavior of private foundations with less than $50 million in assets. Foundations of this size constitute 98% of the 84,000 private foundations in the United States. Trends in Private Foundation Investment details how these foundations fared from 2008, the low point of the Great Recession, through the end of 2013.
The report findings are based on the actual investment holdings, asset balances, and expenses of 238 Foundation Source clients (a sample of the company's more than 1,200 clients). Because there is scant publicly available information regarding the asset allocation and returns of private foundations of this size, this report fills an information gap for high-net-worth donors, financial advisors, and private wealth managers. The complete report can be downloaded at http://www.foundationsource.com/resources/library/trends-pf-investment/.
Top findings from the 2014 report include:
1. Foundation assets have recovered strongly since 2008 (SEE FIGURE 1): Overall, the asset levels of foundations have increased by 48% since 2008. In the six-year span covered by this report, asset balances for these 238 foundations grew from $700 million to more than $1 billion, an increase of $334 million.
2. Despite nearly uniform investment portfolio performance for foundations of every size, the resulting endowment balances were surprisingly inconsistent (SEE FIGURE 2 & FIGURE 3): While midsized ($1M –$10M) and larger foundations ($10M–$50M) enjoyed steady and robust endowment gains, the endowments of smaller foundations (less than $1M) remained flat. This was likely because smaller foundations typically distribute a greater percentage of their assets than their larger counterparts.i
3. As expected, equities played a leading role in asset growth (SEE FIGURE 4): As the stock market rallied after 2008, foundations increased their equity holdings, while reducing their percentage of holdings in cash. In 2008, these foundations allocated 42.4% of their assets to equities; by 2013, that percentage had increased to 55.5%. Over the same period, cash holdings shrank from 20.5% to 12.8%.
4. Post recession, foundations paid lower investment fees (SEE FIGURE 7): In the wake of the recession, foundations were paying lower investment fees. In 2008, 19% were paying between 100 and 150 basis points, whereas in 2013, only 6% paid fees at that level. During the same time period, the number of foundations paying less than 50 basis points grew from 34% to 55%.
According to Robert Chartener, Chief Executive Officer of Foundation Source, "Private foundations have philanthropic commitments that depend on reliable investment returns. At no time has the pressure on their financial advisors to meet this challenge been greater than during this economically turbulent span of time. Our new report shows how our clients, together with their financial advisors, capitalized on improving markets these last few years, revealing in the process some noteworthy trends in investing."
According to Page Snow, Chief Philanthropic Officer of Foundation Source, "Some of the findings seem surprising until you take the distributions of these foundations into account. For example, across the board, foundation portfolios enjoyed very similar market gains, yet the endowments of the sub-$1 million foundations remained flat year over year. That's because, in our experience, smaller foundations distribute a greater percentage of their assets – on average above 20% of their assets – than their larger counterparts."
To provide additional context to its quantitative data, Foundation Source surveyed 190 clients regarding their perceptions of their investments and advisors. Overall, clients were either "highly" or "mostly" positive about their foundation's performance (93.7%) and their relationships with advisors (97.4%), findings that were likely bolstered by the market recovery. Still, the survey pointed to three key areas where advisors might add additional value to client relationships. These were:
- Creating an investment policy: 64.5% of foundation respondents indicated that they lacked a written investment policy. Of those that did have such a policy, 36.9% said they'd updated it within the last year.
- Engaging the next generation: 38% of respondents said it was "somewhat important" that advisors engage with the next generation of foundation leaders, while 22.3% said it was "critically" important for advisors to do so. Despite their apparent interest, less than half (46.3%) of respondents said that their investment advisor had interacted with the next generation.
- Impact investments: Although the majority (60.1%) said advice on social impact or mission-related investments was "not at all important," fully one third of respondents said such advice was either "somewhat" or "critically" important.
According to William Sutton, head of U.S. Philanthropic Services at UBS: "Private foundation donors clearly value and maintain their relationships with financial advisors. Nevertheless, in a competitive marketplace, it's essential that advisors bring added value to the client relationship where and whenever possible. The Foundation Source report on private foundation investing provides a host of valuable findings for the advisor community, grounded by survey data from an audience that can be difficult to reach."
According to Melanie Schnoll Begun, Managing Director, Morgan Stanley Philanthropy Management: "Most reporting on private foundations simply does not look at this slice of the market, despite the fact that foundations of this size represent the vast majority in the U.S. The report from Foundation Source offers financial advisors and private wealth managers an invaluable tool to benchmark their performance for their foundation clients, and to inform their guidance for high-net-worth clients who may be considering starting a private foundation."
About Foundation Source (www.foundationsource.com)
Foundation Source is the nation's largest provider of comprehensive support services for private foundations, bringing specialized knowledge and expertise to clients across the country. The company's administrative services, online foundation management tools, and philanthropic advisory services provide a complete outsourced solution for private foundations. The result: better-run, more effective foundations and more enjoyable philanthropy. Our clients supply the funds, the vision, and the philanthropic goals; we provide everything else.
Today, Foundation Source provides its services to more than 1,200 family, corporate, and professionally staffed foundations, of all sizes, nationwide. We work in partnership with wealth management firms, law firms, and accounting firms, as well as directly with individuals and families. Foundation Source is headquartered in Fairfield, Connecticut, with offices in Boston, Denver, Los Angeles, New York City, Philadelphia, South Florida, Seattle, Washington, D.C., and Winston-Salem.
i "2012 The Foundation Source First Annual Report on Private Foundations," p. 10; "2013 Foundation Source Annual Report on Private Foundations," p. 15.
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Source: Foundation Source