Alternative Investments

Top Three Takeaways: Family Foundation Endowments

While the new year has arrived amid exceptional challenges and market volatility, high-net-worth (HNW) family philanthropy fortunately remains strong and a driving force for social change.

To understand how HNW families sustain and support their charitable work, we recently analyzed the endowments of more than 1,000 private, non-operating foundations—the majority of which are family foundations—with assets of less than $50 million over a 2-year period.

Here are our top three takeaways about family foundation endowments:

  • Growth from Multiple Sources.  Family foundation endowments enjoyed double-digit growth in 2020 and 2019, helping to fund the increase in grants seen in 2020 and set the stage for future giving. Part of the growth was fueled by investment returns; the endowments we studied achieved average portfolio growth of 12.7% in 2020 and 20.0% in 2019 gross-of-fees. Growth was also the result of new contributions from funders who replenished an average of 57 cents for every 83 cents they disbursed in grants and expenses, which indicates ongoing charitable intent.

  • Equities Dominate. Across our study sample, equities were the endowments’ largest portfolio allocation at approximately 55%, which is consistent with a long-term horizon and institutional-caliber investment strategies. Average allocations to fixed income were 16%, and alternatives were 12%.  When viewed by foundation size some differences emerged:

  • Smaller foundations (those with less than $1 million in assets) had the highest allocation to cash at 19%, likely to support their higher grantmaking volumes and associated liquidity needs.
  • Mid-size foundations (those with between $1 million and $10 million in assets) had the highest allocation to equities at 60%.
  • Larger foundations (those with between $10 million and $50 million in assets) had the highest allocation to alternative investments at 14%, far outpacing the exposure of smaller and mid-size foundations to similar asset types.

  • Declining Costs. The average expenses associated with investment-related services – including banking, brokerage and advisory fees – across the foundations in our study decreased from 54 basis points in 2019 to 50 basis points in 2020.

To view our full report on private foundation endowments, visit here.  Of the roughly 100,000 private non-operating foundations in the United States, 98% have endowments of less than $50 million and 63% have less than $1 million. As such, our report findings are a key benchmark for affluent philanthropists and the advisors who support them. In conjunction with our 2021 Report on Private Foundations – Grantmaking, the report provides a complete picture of the giving and funding activities at the heart of family foundation operations.

Hannah Shaw Grove has spent three decades studying and working with high-net-worth families, family offices and their closest advisors on achieving their wealth management priorities. She is Chief Marketing Officer at Foundation Source, the nation’s largest provider of support services to private foundations. The firm works in partnership with financial and legal advisors as well as directly with individuals and families.

 


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