Infovest21’s Latest Issue of Investor Focus: Foundations re-evaluate asset allocation and business models

The Foundation Center says the recent economic crisis caused the US’ more than 75,000 grant making foundations to reduce their 2009 giving by 8.4% - the largest decline ever tracked by the Foundation Center. Grant dollars fell from $46.8 billion to $42.9 billion. Foundation assets fell 17% in the prior year.

"The economic crisis has not ended for this country's nonprofits, and it will be some time before foundations are in a position to help them return to growth," said Bradford Smith, president of the Foundation Center in a press release. "But funders have made exceptional efforts to lessen the pain faced by the nonprofit community."

The Foundation Center's annual "Foundation Giving Forecast Survey" suggests that 2010 foundation giving will remain flat — a less pessimistic outlook than anticipated a year ago. Should the economic rebound continue, foundation giving may show positive, though modest, gains in 2011.

The survey included responses of about 1,280 large and medium-sized foundations in the US.

The three foundations interviewed in the current issue of Investor Focus – The Commonwealth Fund, El Pomar Foundation and American Legacy Foundation - are postured conservatively as their goal is to continue the foundation into perpetuity. Philanthropic organizations are required to commit a certain portion of their endowments to some type of charitable activity annually. The three foundations are also re-evaluating their asset allocation and business models.

Anthony O’Toole of American Legacy Foundation observes that foundations are reducing their exposure to stocks to reduce the risk if another market decline should occur. Foundations are increasing allocations to real assets to protect their portfolio from inflation and take advantage of the depressed real estate market. He says they are also investing more in private equity. Their goal is to receive quarterly income distributions as well as obtain potential investment upside later.

A Greenwich Associates survey also found that endowments and foundations dramatically increased allocations to passive domestic equities last year in response to liquidity problems caused by the global financial crisis. Allocations to active US stocks declined to 11.5% in 2009 from 22.9% in 2008. Meanwhile allocations to passive domestic equities increased to 16.4% from 5.5% over the same time period.

The study found the shift was even more dramatic among the largest endowments and foundations i.e. those with over $1 billion in assets. Their allocations to active US stocks fell to 9.3% from 22.7% while allocations to passive US equities jumped to 18.9% from 5.0%.

El Pomar Foundation’s Thayer Tutt points to a recent survey which found that 84% of foundations and endowments invested in hedge funds in 2009.

Inside This Issue:
Interviews with American Legacy Foundation, El Pomar Foundation, The Commonwealth Fund
Table: Sampling of largest foundations by asset size
Table: Foundation performance and asset allocation
Book review: No One Would Listen
Sentiment Indicator: Marketers
Sampling of Who’s Who in Foundations
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