Foundations turn to alternative investments

Foundations experienced a decline in returns in 2007, according to a study released yesterday by the Commonfund.

The 300 private and community foundations that participated in the annual benchmark study saw returns drop to 9.9%, from 13.7% the previous year, the Wilton-Conn.-based research and advisory firm found.

The study also found that foundations put more into alternative investments and held less cash.

Foundations increased their allocation to alternative investments, on average increasing their asset allocation to 28%, compared with 23% in the previous year.

Larger foundations tended to have higher allocations to alternatives.

The group on average reduced their holdings of short-term securities and cash to 5%, from 8% a year earlier.

All other asset class allocations were modestly lower or at the same level as the prior year.

The highest returns averaged 21% and were found in the energy and natural resources sectors. Other leading asset-class returns were 15.9% for international equities, 14.7% for private equity, 13.8% for private-equity real estate, 12.3% for marketable alternative strategies, 11.1% for venture capital, and 10.3% for distressed debt.

Stock returns dropped sharply: International stocks returned 15.9%, down from 25.1% in 2006, and domestic stocks dropped to 7.5%, from 14% a year earlier.
Fixed income, on the other hand, rose to 6.9%, compared with 4.7% in 2006.

The survey included 226 private foundations and 74 community foundations representing assets of nearly $195 billion.