A recent report from the U.S. based Council on Foundations on investment returns for community and private foundations in 2018 is an interesting read. We monitor these reports as one way to confirm how the Foundation investment performance compares to similar size foundations.
Challenging Year
The report articulates how 2018 was a challenging year. On average private foundations earned a negative -3.5% for one year and community foundations a negative -5.3%. The OAF achieved a better, but still negative one-year return of -1.9%. All of these results are reported net of all investment management costs.
One would caution that December 2018 was a particularly challenging year end, and markets recovered strongly in the first quarter of 2019. (The Foundation earned 8.1% for the year ending March, 2019.)
Endowment spending and annual disbursements averaged 4.6% for community foundations. Spending rates declined slightly across the sector in light of the lower returns.
Most organizations’ long-term reporting (10-year performance) no longer includes the 2008 market downturn. When looking at 10-year returns, community foundations with assets below $100 million generated annual returns of approx. 8%. The OAF 10-year return is similar at 8.2%.
Asset Allocation
One of the factors we monitor is the asset allocation strategy of comparable size foundations. During 2018, changes in asset mix were minimal for both private and community foundations. The most significant difference between the OAF and private and community foundations is the larger allocation to alternative strategies and a lower allocation to fixed income by the OAF.
The Foundation board has been lowering direct fixed income as a part of asset mix, as we feel that higher returns are available from equities on a long-term basis.
Conclusion
It is not our intention to follow the strategies of other foundations. The OAF charts its own strategy which focuses on the long-term and protects capital, ensuring annual returns that allow for disbursements to support the arts.
Nonetheless, it is helpful to monitor what is happening in the charitable sector as a “reality check” and assurance that our strategies are doing well.