Foundation Leaders Highlight Successful Long-Term Investment Strategies during Turbulent Times

October 11, 2023 |
2 minute read
|

On September 27, 2023, Commonfund Institute hosted a webinar, “Highlights of the 2022 CCSF: A Deep Dive with Foundation Leaders.” The panel featured Elizabeth McGeveran, Director of Investments at McKnight Foundation, Bob Sorge, President and CEO of Madison Community Foundation, Steve Snyder, Managing Director at Commonfund OCIO, and was moderated by Commonfund Institute’s Executive Director, George Suttles.

Returns, Spending, and Asset Allocations

The event kicked off with a discussion of the headline results from our recently released Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations (CCSF) Study, which found that private and community foundations on average reported -12 percent and -13.3 percent returns, respectively, in 2022. While these results were consistent with the experience of McKnight and Madison Community Foundations, all panelists emphasized outsized importance of 5- and 10- year returns, which as historical CCSF data show, are on an uptrend across foundations. Panelists reflected that the goal of foundations as long-term institutions is to maintain purchasing power over the long term, despite market cycles and volatility.

The conversation quickly turned to spending – the link between endowments and organizational missions. Spending policy helped organizations stay on course despite turbulent markets and a high inflation environment in 2022. Under Sorge’s leadership, and in collaboration with Commonfund, Madison Community Foundation changed their spending policy from a banded approach to a 20-quarter moving average, in order for grantee support to reflect long-term market conditions (without overspending in an up year or underspending in a short-term down trend). They sought to bolster community organization capacity with resources beyond just grant funding, for example, with assistance applying for PPP loans during the pandemic and IRA-funded grants for local solar projects.

Regarding both spending policy and asset allocation, the panelists reported minimal changes over the past year. This mirrored data reported in the CCSF showing that most organizations maintained their spending and portfolio allocations in 2022, as their construction was intentional and long-term oriented. Further, panelists stressed the importance of communication with stakeholders about their strategy, to anchor decision making, and provide consistency that is essential for the nonprofits and projects that they support.

The one asset class that warranted discussion from all panelists was private allocations. Whether it was mission-oriented sustainability projects or a vehicle for diversification and outperformance, both foundations emphasized the role of alternative strategies in their portfolios. As Snyder pointed out, the potential outperformance generated by the illiquidity premium (over public markets) can be critical to replace dollars spent on mission, especially given inflation, as well as administrative fees. He also highlighted that increasing allocations to private asset strategies is a trend Commonfund has seen throughout the nonprofit industry, which is confirmed by the findings of the CCSF study.

Impact and SRI

Both institutions have an impact strategy. McKnight aims to invest in businesses that align with initiatives their program team is also working on, seeking financial, impact, and program returns all at once. This largely comes in to play in their real assets portfolio, with investments in solar, wind, large-scale battery technology, and joint-financing for clean transportation. Madison has tried different strategies, including a separate SRI portfolio, and a recoverable grants model that will allow them to invest directly in the community over time.

McKnight foundation aims to align spending with the mission to act urgently on climate change and take advantage of the discounted value of near-term climate emission reductions for long-term climate outcomes. Therefore the foundation, rather than cutting spending during a down year, is looking at increasing spending both on climate related investments, and for some of their small grantees that would be least able to weather the inflationary environment. 

McKnight is in the process of decarbonizing their portfolio, which was an alternative strategy to screening out fossil fuels. With nearly 50 percent of the portfolio being mission-related, a sizeable separate impact portfolio, and a diverse manager program, the foundation is demonstrating both mission alignment and leadership among large philanthropic institutions. The result in terms of performance, McGeveran said, has been neither a drag nor “virtuous fairy dust.” 

Ultimately, although both foundations vary in asset size and programmatic focus, they are pursuing impact and values aligned investment strategies that advance the mission of their foundations and strategically allocate capital to their grantees and communities. 

Amanda Novello

Author

Amanda Novello

Senior Policy and Research Analyst

Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.