U.S. FOUNDATIONS REPORT HIGHER AVERAGE ANNUAL RETURN OF 13.7% IN FY 2006, UP FROM 7.9% IN 2005; TOP DECILE REPORT HIGHEST AVERAGE RETURN OF 18.5%

Commonfund Benchmarks Study 2007 Foundations Report shows increased allocations to International Equities and Alternative Investments; continued decreases in Domestic Equities and Fixed Income; average Spending Rate remains at 5.5%

WILTON, CT, June 13, 2007 – U.S. independent/private and community foundations reported an average annual return of 13.7% in Fiscal Year 2006 according to the Commonfund Benchmarks Study® 2007 Foundations Report. This compares with average annual returns of 7.9% in FY 2005. Average returns ranged from 15.6% for the largest institutions ($1 billion or more in endowment assets) to 12.4% for the smallest foundations (assets between $51 million and $100 million). The Benchmarks Leaders – those foundations with the highest average returns – reported average annual returns of 18.5% for the top decile and 17.1% for the top quartile. Average 3-year and 5-year returns for all institutions were 11.3% and 9.0% respectively. All returns are net of fees. The top asset class contributors to overall returns were international equities (25.1%) and energy and natural resources (17.6%).

The annual study surveyed 279 institutions with a total of $192 billion in endowment assets, including 214 independent/private and 65 community foundations. Results were reported as of December 31, 2006, the fiscal year-end for most institutions surveyed. Average returns by institution type were 13.7% for independent/private institutions and 13.6% for community foundations. The average reported return assumption for the next three to five years is 8.5%.

Operating Charities are no longer included as part of the findings for the Commonfund Benchmarks Study® 2007 Foundations Report. For the first time this year, Operating Charities are reported as a separate category from foundations; top-line information from the 2007 Commonfund Benchmarks Study Operating Charities Report is included below.

“Foundation investment performance improved significantly last year due to more favorable market conditions and continuing increases in allocations to international equities and alternative investments,” said John S. Griswold, Jr., Executive Director, Commonfund Institute. “Our Study indicates that many foundations have increased their allocations to such strategies, consistent with proper diversification, due diligence and good management practices.”

Average asset allocations for total institutions for FY 2006 showed a continuation of trends observed in previous years. Average domestic equities allocations continued to decline to 33% in FY 2006 vs. 36% the previous year. Among domestic equities, 75% is actively managed and 25% is passively managed.

Average fixed income allocations declined to 16% in FY 2006 vs. 18% the previous year. Alternative strategies increased to 23% vs. 21%; international equities rose to 20% vs. 18% and cash/short term investments were 8% vs. 7%.

Foundations in general reported that they expect to increase allocations to international equity and alternative strategies, and to decrease allocations to domestic equity, fixed income and short term/cash in FY 2007.


Benchmarks Leaders
The top-decile and top-quartile performers in the Benchmarks Leaders group differed significantly from total Study participants in their asset allocation. They had significantly larger allocations to alternative strategies than total institutions, modestly greater international equity allocations, and smaller allocations to domestic equities and fixed income.

Benchmarks Leaders in the top quartile reported higher allocations to alternatives (28%) and international equities (22%) compared with total institutions, and lower allocations to domestic equities (30%), fixed income (15%) and short term/cash (5%). Top decile institutions had even higher allocations to international equities (24%) and alternatives (30%) than total institutions, and lower allocations to domestic equities (28%), fixed income (14%) and short term/cash (4%).

Eighty-two percent of total Study institutions rebalanced their portfolios in FY 2006, down from 87% in FY 2005, but up from 78% two years ago. There were no significant differences in the percentage of institutions rebalancing when viewed by size, but 92% of community foundations reported rebalancing versus 79% of independent/private foundations. When asked how often they rebalance their portfolios, 54% of respondents that rebalance report doing so on an “as needed” basis, which is the favored approach for foundations of all sizes.

Hedge Funds Continue to Dominate Alternative Strategies Allocations
Within alternatives, average allocations to hedge funds predominated, at 46%. Institutions with $101-500 million in endowment assets reported the highest average hedge fund allocation of 62%. There was a wide range of marketable alternative strategies, particularly among the largest institutions. Hedge fund allocations were 56% to strategies with stable, low volatility/lower return targets; 24% to those with high volatility/higher return targets; and 20% to other strategies. The reasons cited most frequently for using hedge funds were portfolio diversification (37% of respondents) and downside risk protection (33% of respondents).

Private equity allocations were 17% of the alternatives allocation; private equity real estate was 12% of alternatives, energy and natural resources 10%, venture capital 10%, and distressed debt 5%.

Spending Rates held steady, but actual spending dollars increase
The average spending rate was 5.5% of total assets, unchanged from FY 2005. This is the lowest level in the five years covered by this study. However, with portfolio returns in double digits, although the spending rate will naturally decrease, 63% of respondents nonetheless reported spending more in actual dollars than the previous year.

Spending rates in general were slightly higher at smaller institutions than at larger institutions.

Nearly one-half (41%) of respondents said that they determine spending policy as a percentage of a moving average, with the average spending rate reported at 5.2% of total endowment value. Thirty-eight percent of respondents reported that their spending policy is to meet the IRS minimum spending rate of 5%.

Social Investment Restrictions
Forty-six respondents, or 16.5%, reported that they have social investing criteria. Most of these institutions (61%) screen part of their portfolios and 33% screen all of their portfolios. Among these institutions, the investment restrictions cited most often were those related to tobacco (74%); firearms/weapons (30%); alcohol (24%) and pornography (22%).

Donor Stock
Thirty-four institutions, or 12.2%, reported holding donor stock; and an average 18% of the portfolio is represented by donor stock. More than half (59%) of these respondents said that donors play a significant role in foundation governance. Asset allocations for donor stock institutions were similar to those for Study participants in general, except for lower allocations to alternative investments and higher allocations to short term/cash. Average returns for institutions with donor stock were slightly higher than those for participants with no donor stock, and for total institutions.

Gifts and Donations
Seventy percent of community foundations reported increases in gifts and donations over the past year.

Management and Staffing
Respondents overall reported that professional staffing increased slightly to an average of 1.3 full-time equivalents (FTEs) vs. 1.2 FTEs the previous year. Among those institutions giving a breakdown of professional staff, 47% of Study participants report that they have a Chief Investment Officer, 22% have a portfolio manager, 25% have an analyst, 19% have a CPA, and 12% have a Chief Financial Officer on staff. Few institutions added staff in FY 2006. Instead, respondents reported an increase in the use of their boards, investment committees, and outsourcing to consultants. Among those institutions that expect to add investment staff in FY 2007, 43% plan to hire an in-house analyst.

Corporate Governance
Nearly three-quarters of Study respondents reported having conflict of interest policies for their board and investment committee. Eighty-seven percent reported having the same policy for senior staff. Twenty-eight percent of respondents allow board members to do business with the institution. The highest risks identified for board members on a scale of 1 to 5 (with 5 the highest) were failure to preserve the value of the portfolio in real terms (4.6), followed by failure to achieve investment objectives (4.4). The most common processes for resolution of potential conflicts were disclosure (25% of respondents) and recusal (21%).

The average number of voting members on the investment committee was 5.9, a figure which did not vary significantly by foundation size.

Operating Charities Returns also rise
For the first time this year, Operating Charities are reported as a separate category from foundations. Operating charities expend most of their funds in support of their own mission and programs, while foundations generally make grants externally. They are also more likely to raise funds from public contributions than are private and independent foundations. The 2007 Commonfund Benchmarks Study Operating Charities Report is the first stand-alone Benchmarks Study devoted to operating charities, and is available from Commonfund to qualified nonprofit organizations upon request.

The 2007 Operating Charities Report is based on data from 101 U.S. operating charities representing nearly $55 billion in endowment assets. The average annual return for FY 2006 for participating operating charities was 13.0% (net of fees). This compares with 7.9% for FY 2005 and 11.3% for FY 2004. Viewed by type of operating charity, FY 2006 returns were 13.3% for cultural institutions, 13.0% for social services institutions and 12.6% for religious institutions.

Viewed by size of institution, operating charities with endowments of $101 to $500 million returned an average 13.4%, just a tenth of a percentage point ahead of the largest operating charities (those with more than $1 billion in endowment assets). Smaller operating charities – with assets of $51 to $100 million – returned an average of 12%, while larger operating charities – with assets between $501 million and $1 billion – returned an average 11.5%.

The vast majority of operating charities’ year-over-year asset growth was generated by these good investment returns. On average, 81.5% of asset growth came from investment returns, with the remainder assumed to come from gifts and donations.

Operating charities’ average spending rate was 5.1% of total assets, down from 5.5% in FY 2005 and 5.7% in FY 2004. Viewed by type of institution, the spending rate was highest for religious institutions at 5.5%. Social services institutions averaged 5.1%, while cultural institutions reported a 4.9% spending rate.

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The Commonfund Benchmarks Study® 2007 Foundations Report, sponsored by the Commonfund Institute, surveyed 279 independent/private and community foundations throughout the U.S. with total endowment assets of $192 billion. The study was conducted through telephone interviews during the fourth quarter of 2006 and first quarter of 2007. It included 214 independent/private and 65 community foundations.

The Commonfund Benchmarks Study® 2007 Operating Charities Report surveyed 101 cultural, religious and social services organizations throughout the U.S. with total endowment assets of nearly $55 billion. The study was conducted through telephone interviews during the first and second quarters of 2007. It included 37 cultural, 36 religious and 28 social services organizations.

All institutions were asked to report their data for the period ending December 31, 2006. The Studies are conducted annually.

About Commonfund
Founded in 1971, Commonfund is devoted to enhancing the financial resources of educational and other nonprofit institutions including endowments, foundations, healthcare and service organizations through superior fund management, investment advice, and treasury operations. Directly or through its subsidiaries, Commonfund Capital, Commonfund Realty, and Commonfund Asset Management Company, Commonfund manages approximately $40 billion for approximately 1,800 nonprofit educational institutions, foundations, healthcare and other nonprofit institutions, representing one of the largest pools of educational endowment and operating funds in the world. In response to the growing needs of nonprofit institutions, Commonfund, together with its subsidiary companion organizations, offers more than 45 different endowment investment programs including funds for the management of short- and intermediate-term operating cash reserves. All securities are distributed through Commonfund Securities, Inc. www.commonfund.org.