News and analysis
November 11, 2012

Rocky Markets Rattle Nonprofit Endowment Returns

Habitat for Humanity

Habitat for Humanity International created an endowment to help it attract more planned and long-term gifts. The endowment, which now nears $3-million in assets, earned gains of 49.5 percent in 2011.

Endowments at the nation’s charities and foundations are on pace this year to record lackluster investment returns similar to those they achieved in 2011, a new Chronicle survey finds. (See all the data.)

The survey of 268 organizations that provided two years of data shows that endowments are reporting nearly 5-percent growth, the same median return on investment that the survey found for 2011. The recent post-election drop in stock markets fueled by investor anxiety over possible federal tax increases and spending cuts in January are likely to drive those results even lower this year.

The modest gains seen in the survey come after a strong 12-percent jump in investments in 2010. Still, investment returns for the past three years have not been enough to recover the steep losses many nonprofits suffered during the depths of the recession. For the 181 groups that have reported five years of data, endowment values are 14.9 percent lower than in 2007 and 3 percent below 2008 levels, the recession’s first full year.

Groups whose fiscal years ended December 31 had flat growth on their investments, The Chronicle study found, while those with fiscal years ending June 30 reported median 17-percent gains. Those results mirrored the wider stock market, which saw similar swings. The Standard & Poor’s 500 index finished 2011 flat from 2010 but jumped 28 percent from July 1, 2010, to June 30, 2011.

Big Earnings at Big Groups

To strengthen endowment values in such a low-growth investment environment, some organizations are cutting how much they spend from their funds, others are appealing more to donors, and many are increasing how much they invest in alternatives such as hedge funds and real estate as opposed to traditional stocks and bonds portfolios, the survey found.

Groups with larger endowments saw better investment performance than their smaller counterparts in 2011, a trend that is continuing in 2012, according to the survey.

Those bigger organizations also invested their endowments more heavily in alternatives rather than in stocks and bonds.

Organizations with endowments of $1-billion or more saw a median return on investment of 13.6 percent in fiscal year 2011 and had a median of 36 percent invested in stocks. Organizations with endowments between $100-million and $500-million recorded a 2.1 percent median return for the same period with 46 percent invested in stocks.

Gates Tops the List

The three richest endowments in the survey were the Bill & Melinda Gates Foundation ($33.8-billion), Harvard University ($32-billion), and Yale University ($19.4-billion).

The Huntington Library, Art Collections, and Botanical Gardens enjoyed the biggest gain in endowment value. The San Marino, Calif., organization ended fiscal year 2011 with a 73-percent gain, with a total of $414.7-million.

More than 700 nonprofit organizations from across the United States were asked to provide endowment data. The Chronicle expanded its sample to include nonprofit endowments valued below $5-million and to increase the number of endowments valued below $100-million. This year’s survey includes more than 100 endowments valued below $100 million—30 of which are groups with endowment values below $5-million.

Send an e-mail to Doug Donovan and Marisa Lopez-Rivera.