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.
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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