Council on Foundations Report: 28% Decline in Assets, Changing Investment Managers

A February 2, 2009 report published by the Council on Foundations showed that foundation assets had declined by 28% in 2008 among the 127 respondents who completed the survey. While the report points out that the decline included both grants and losses due to investment performance, questions remain about how foundations should invest money in an investment climate that continues to remain uncertain. The report highlights the fact that while many foundations had not made changes to their overall investment strategy, most were making changes to the investment managers, diversification, or overall risk levels in their portfolios.

Foundations are changing Investment Managers

  • 90% of foundations reported using outside investment managers
  • 48.6% of foundations had either changed, or were considering changing investment managers
  • 67% of foundations with assets greater than $100 Million had either changed, or were considering changing managers
  • Larger foundations (greater than $100 Million) were more likely to switch investment managers (67% vs. 41%) compared to smaller foundations under $100M

Increased use of Investment Policy Statements

  • 96% of foundations with assets greater than $25 Million had a written investment policy statement
  • Of those with written policies, 25% had reported changing their written policies since June 30, 2008
  • Smaller foundations with less than $100 Million were more likely to have changed their written policies
  • Use of written investment policies up among all groups

The report also pointed out that there was a significant trend toward attempting to lower investment fees, and a shift away from equity investments in favor of more conservative fixed income or cash. Nearly 41% of foundations surveyed held an average of almost 8% in hedge funds, although the report did not mention what impact if any the Bernard Madoff reports were having on hedge fund investments.

Richie’s Bottom Line:

Based on these findings, it appears that foundations are in panic mode. While most went into 2008 having written investment policy statements with their investment managers, foundations are giving them their pink slips anyway.  This begs a few questions in this manger’s view:

  • Do foundations understand what’s in their investment policy statement?
  • Is the investment dog wagging the foundation strategy or does the foundation strategy drive the investment mix?
  • Does the investment team have a meaningful relationship and understanding of where the foundations program objectives are or are they just being hired to manage a model portfolio allocation?

In my opinion, these are some of the critical questions that foundations should be asking as they make decisions about their advisors. While performance, fees, and written policies  seem to go without saying here, the real question foundations should be asking is; “Do I feel loved?” While that may seem like a silly question, it’s really no different than any other relationship. Do they love me for who I am or only for my money? How can you tell? Come on, you don’t really need me to answer that do you? Ok, fine I will… next time…“How to tell if my investment manager loves me”.

Click here to see the complete Council on Foundations Report

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Filed under Current Events, ECONOMY, FINANCIAL PLANNING, FOUNDATIONS, INVESTING, NON-PROFIT & CHARITY, SOCIAL ENTREPRENEURSHIP

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