A Closer Look at Long-term Returns

In the annual Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations® (CCSF; the "Study") data was collected on longer-term returns for the first time—specifically 15- and 20-year net annualized returns—in addition to the standard time periods typically reported. The Study surveyed 255 foundations—154 private and 101 community—for the calendar year ending December 31, 2024.

Here are a few key takeaways from this new data:

• 15-year net annualized returns for both private and community foundations overall meet, or nearly meet, the common long-term benchmark for achieving intergenerational equity of 7.5 percent, or CPI+5%.¹
• 20-year data is less positive, falling below that benchmark. It is important to note, however, that the average 20-year return reported for total institutions is based on fewer responses than 15-year data.² For example, the Study does not report on 20-year data for the largest size cohorts because there were too few responses to analyze, meaning the data is based more on mid- and small-sized institutions, which often report relatively lower long-term returns, on average.
• Where size cohort data is available, 15-year returns were 250 basis points higher for the largest private foundations compared with the smallest cohort’s returns, on average.
• 15-year returns surpass 10-year returns for total private and community foundations, on average. Amid growing market complexity, this may contribute to the top concerns reported by this year’s respondents–not meeting target returns and long-term market volatility—each cited by one-third of all private foundations, and the latter cited by one-third of community foundations.

Return Objectives: Private foundations had an average long-term return target of 6.6 percent in 2024. This was down from 7.1 percent, perhaps indicating lower expectations or foundations adjusting for expectations of inflation (around half of private foundations incorporate inflation into their return objective). For community foundations, the average target return objective was 6.9 percent, unchanged from the prior year. Larger private foundations tend to have higher return objectives than smaller ones, while there was a narrower dispersion among community foundations.

Spend Rate: The 5 percent in “CPI plus 5” is the standard long-term objective assumes a spend rate of 5 percent. But Study data allows access to real spending data by foundations. In 2024, the average stated policy spend rate for private foundations was 5.2 percent and 4.6 percent for community foundations. To sustain these levels of spending for intergenerational equity, a commensurate investment return of 7.7 percent and 7.1 percent would be required (given 2.5 percent inflation).

What percentage of foundations met this goal? In this year’s Study, a private foundation would have to be in the 69th percentile or above to have 10-year returns that meet or exceed a 7.7 percent spend rate plus inflation (in other words, 31 percent of private foundations met or exceeded this target in 2024); a community foundation would have to be in the 59th percentile or above to meet 7.1 percent (41 percent of community foundations met or exceeded this in 2024). 

Market Volatility and Meeting Returns: Top Concerns

In 2024, nearly one-third of private foundations reported not meeting target returns was one of their top two concerns. This is up from the 2023 Study, when 27 percent of private foundations reported the same. The most cited concern among both foundation types—and roughly one third of all participants—was long-term volatility in the financial markets. This sentiment is supported in part by an average return standard deviation of nearly 10 percent reported by participants in the Study, as well as a dramatic spike in the VIX index in the months leading into the survey period.³ Proposed regulations on DAFs are top of mind for community foundations, which could impact financial outcomes related to these increasingly common philanthropic vehicles.

Both private and community foundations have reported strong long-term returns. However, there is growing concern around achieving the same level, or even higher returns to match potential increased spending needs, and preserving future purchasing power.

1. Where CPI is commonly assumed to be a long-term rate of 2.5 percent.
2. 15-year and 20-year returns were not required questions on the Study survey.
3. The CBOE Volatility Index or VIX is a widely used indicator of volatility in financial markets that is defined by market expectations for the relative strength of near-term price changes of the S&P 500 Index.