Investment Objectives? Not Always.

October 13, 2022 |
1 minute read
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The 2021 Council on Foundations—Commonfund Study of Investment of Endowments for Private and Community Foundations® (CCSF) marked our tenth year in collaboration with the Council on Foundations. The focus of the Viewpoint is on the long term and reviewed select data that our research has uncovered over the years—not data for data’s sake, but rather for insights into the evolution of foundations’ endowment management over the decade and the implications they may carry for the future. In this third blog of the series, we take a closer look at investment objectives. 

The previous blog in this series discussed the subject of asset allocation as the bedrock of investment policy statements because through it, nonprofit organizations seek to preserve the value of the assets—by diversifying the portfolio—while also growing the assets (covering inflation and expenses plus, ideally, a growth increment). It is surprising, then, that in a typical year anywhere from 15 to 25 percent of foundations participating in the CCSF say they do not have long-term investment objectives.

It has been a regular pattern over the past eight years for private foundations to have long-term investment objectives at a higher rate than community foundations (regular, but not consistent as community foundations had long-term objectives at higher rates in 2015 and 2017). Over the period, on average, 80 percent of private foundations reported having objectives each year; the average for community foundations has been 75 percent. Over the past four years, private foundations have shown some momentum, as the 82 percent that had objectives in 2018 grew to 83 percent the next two years and to 84 percent in 2021. Over the same period, community foundations actually lagged their rates from earlier in the decade, as only 67 percent to 76 percent had long-term objectives.

Conclusion

The point is that the investment objective informs the asset allocation. A long-term objective of 4.0 percent and one of 7.5 percent require very different asset allocations. If a look back prompts a change going forward, this merits attention.

On a related subject, risk is or should be a significant part of every investment policy statement (IPS). Yet in this Study, only 56 percent of private foundations and 49 percent of community foundations have an IPS that defines risk. Compared with the 2018 Study, that is a modest improvement for private foundations but a lower rate for community foundations. Perhaps this is another subject that warrants active discussion.

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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.

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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.