The Math is Simple
Private foundations have $1 trillion in assets. An incremental 1% return on investment would yield an additional $10 billion….per year…every year.
To put that in perspective, the additional $10 billion would equal the annual charitable support provided by 12 Ford Foundations, 36 Rockefellers, or 45 Carnegies – you get the picture. Better returns of just 1% would be the biggest thing to hit philanthropy since Bill Gates (or actually bigger since Gates disburses $5.6 billion a year).
Mind the Gap: Is 1% Better an Achievable Target?
Over the 5 year period to December 31, 2017, the average foundation returned 8.2% while a portfolio comprised of 60% US Stocks (S&P 500) and 40% US bonds (Bloomberg Barclays Aggregate) returned 10.3% – a difference of 2.1% per year. Just cutting that gap in half would have boosted performance by 1%. We think that there is a lot of room for improvement among foundations.
How Do You Get Better at Anything?
Of course everyone wants better investment performance, sadly there is no single answer on how to improve performance. That said, there are some simple lessons that are universally applicable to improving almost any process.
- See who is doing well and see what you can learn from them
- Create a system for evaluating performance
- Put your thoughts and expectations in writing, review these periodically to see what worked and what didn’t
Be Like Yale
What we mean by “be like Yale” is to read their annual endowment report, not for its information, but for its structure. FoundationMark doesn’t offer investment advice and certainly very few investors have the means to invest like Yale’s legendary investment team led by David Swenson, but it provides an excellent blueprint for fostering a habit of evaluation and improvement.
Let’s look at a few components of the report that we think are important.
|Have a Goal|
Real return of 6.9% with risk (standard deviation of returns) of 13.9%
|Select Asset Classes That You Can Invest In|
9 Asset Classes