The assets of small and mid-size foundations have recovered handily since the recession—thanks in large part to a rallying stock market, according to a new study .
Assets at the foundations grew by a robust 48 percent from 2008 to 2013, from $700-million to more than $1-billion. Last year was particularly strong, with assets growing by $118-million, up nearly 13 percent from 2012.
In 2008, the organizations allocated just over 42 percent of their assets to equities. By last year, those groups had committed nearly 56 percent of their assets to stocks.
"This solidifies the importance of having a balanced portfolio and reallocating assets" as market conditions change, says Robert Chartener, chief executive officer of Foundation Source, the company that conducted the study. He notes that the organizations in the survey held on to significant portions of cash and fixed-income investments during the recession’s leanest years, which added to their assets’ stability.
There’s plenty of room for foundations to grow even more, says Mr. Chartener. The study also indicated that only about 35 percent of foundations have a written investment policy. "That’s a little bit surprising, but it represents an opportunity" for grant makers to give more thought to how they allocate their portfolios, he says. Roughly four of five groups that have a written policy revised it within the last five years, the study shows, indicating that they responded to changing economic conditions.
Foundation Source, which provides support services to private grant makers, surveyed 238 of its clients. Each group holds less than $50-million in assets, as do 98 percent of all private foundations in America. The study was Foundation Source’s first to focus on investment practices. The company plans to release such research annually.
Among other findings:
- Foundations of all sizes are holding a smaller share of their assets in cash now than they did before the recession. In 2008, nearly 21 percent of grant makers’ money was allocated to cash, compared with just under 13 percent last year.
- In contrast to their larger counterparts, the smallest foundations in the survey—those with less than $1-million in assets—reported flat asset growth. This, researchers said, may be because smaller grant makers tend to distribute a bigger share of their assets each year than wealthier foundations do.
- Despite the attention paid to social-impact or mission-related investments, 60 percent of respondents said they felt it was "not important at all" for their adviser to provide guidance on them.
- Foundations have been paying significantly less in investment fees since the recession began. In 2008, nearly one in five organizations surveyed paid between 100 and 150 basis points, while last year, only 6 percent paid fees in that range.