Foundation Source: Small foundations report double-digit growth

Equities and alternative investments fueled sizable growth across the endowment and foundation arena, according to a new report from Foundation Source, a provider of management solutions for private foundations.

The organization reviewed more than 1,000 private and family foundations to better understand the asset allocation, portfolio performance, fees and other trends related to supporting each group’s charitable work. The report is focused on year-over-year analysis of foundations with $50 million or less in assets.

According to publicly available data from the IRS, there are approximately 100,000 private non-operating foundations in the U.S., only 1% of which have more than $50 million in assets. The data set was drawn from transactions, returns and balances recorded by Foundation Source, as the firm paid grants and expenses on behalf of its clients, prepared their tax returns, and recorded investment information provided by each foundation’s financial institution

Officials said that the foundations in the study typically invest more than half of their assets in equities, while relying on other asset types to round out their portfolios, including alternative investments that typically make up 15% of assets on average among those with $10 million to $50 million in assets.

According to the findings, endowments had double-digit net growth in both 2020 and 2019, which is consistent with strong market performance and contribution rates into foundations (donors contributed 57 cents for every 83 cents disbursed in grants and charitable expenses).

“Private foundation endowments ended 2020 in a strong position despite the year’s immense challenges and market volatility,” said Sunil Garga, president and CEO of Foundation Source in a statement. “A sustained period of strong market performance has created a tailwind for committed philanthropists to effect change. We expect to see record grantmaking volume this giving season.”

Overall investment performance was strong with foundations achieving average portfolio growth of 20.0% in 2019 and 12.7% in 2020 on a gross-of-fees basis, according to the report.

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