Our story began with a question – “How many local foundations’ investment portfolios under-performed over the past few years?” (Answer below) It seemed like a straightforward idea. However, when we set out in search of an answer, we were amazed to find an utter absence of data. Despite being a very large (over $900 billion) universe, there was practically no performance information available dedicated to foundations, and none that was granular enough to get local or asset level data. Of course foundation trustees knew their own returns, but they had no frame of reference to compare their performance against other foundations. Too often the only person telling them how they were doing was also managing the portfolio.
As evidenced by the link above, we now have an answer to our question about local foundations performance, but we didn’t “find” the answer, we built it. In the process we built a system to provide answers to many more questions, and more importantly, created resources to help trustees better understand their performance in the context of the foundation universe.
Foundation Advocate is the voice of sister company, FoundationMark, which is a pure data provider to the foundation and financial communities.
Where’s the Data?
When you look at it, there is one very big assumption baked into the “how many foundations under-performed” question – the assumption that foundation performance data could be found, that turned out not to be the case. Performance data simply wasn’t available, which explained why no one was tracking or reporting on it. While foundations don’t have to report their investment performance, they are required to file financial disclosure reports once a year including full financial statements. FoundationMark identified the fact that data from these financial statements contained the information necessary to estimate investment performance. FoundationMark extracted data from over 400,000 (and growing – we get new filings monthly) public filings – a 10 year history of the 40,0000 largest foundations – to assemble the most comprehensive dataset available. To put that into perspective, consider the 500 companies that make up the S&P 500, each is required to publish quarterly financial statements. Therefore, to have a complete set of financials from the constituents, one would need to pull data from 2,000 financial statements a year. Foundations report annually, not quarterly, but each year FoundationMark extracts data from over 40,000 filings. Twenty times the amount of S&P 500 filings per year.
Making Data Useful – FoundationMark Reports and Star Ratings
Data isn’t very useful if it is hard to get or hard to interpret. We wanted to avoid both those pitfalls. Our goal is to provide information to foundations and the financial community to help them be better informed investors. Therefore, FoundationMark designed a performance report that is easy to read and intuitive (see sample pages) including using a familiar star rating system to rank performance, 5 Stars the highest, to help trustees quickly understand their performance in the context of the overall foundation universe. Trustees can request their free FoundationMark Performance Report simply by asking for it. Click here.
Why FoundationMark and Foundation Advocate
We want to be very up-front about the relationship between Foundation Advocate and FoundationMark – we are the same management team and ownership. Why the separation? FoundationMark has a very clearly defined objective: publish the FoundationMark Indices and provide investment reports to trustees. Put another way FoundatonMark addresses, “what” questions – “what was our performance?” “what was the average foundation’s performance?” “what did similar foundations report in investment expenses”. Foundation Advocate advances the discussion of performance from simply reporting facts to include news and analysis, moving to “why/how” questions, “why did foundations under-perform public markets”, “how are large foundations doing compared to smaller ones?”. Foundation Advocate can have a point of view, while FoundationMark is a pure data source.
Putting it All Together
Foundations contribute over $70 billion a year to charities, most of which comes from investment returns. Put very plainly, better returns means more money to important causes. Of course you cant’t know what “better” means without a comparison base? As an independent, transparent, and objective source for performance data, FoundationMark is able to provide representative comparison bases for all foundations. Foundation Advocate keeps trustees and members of the financial community up to speed by providing news and analysis of issues surrounding foundation investment performance.
Returning to our initial question, “how many local foundations….”, we now can answer that question – 567 only because FoundationMark has extracted the data, built the dataset, estimated performance, built indices and representative peer groups to use as reference points.
As seen below, we confined our search group to New York, Connecticut, and New Jersey. We also narrowed the search by asset level – $5 – 100 million and only included foundations that are ‘portfolio foundations’ (the Portfolio Strategy Filter). Lastly, we use the FoundationMark Star Rating system to only return foundations with 1 and 2 Stars – the bottom 40%.
Combining FoundationMark data with other external data sources enables Foundation Advocate to analyze and report on foundation performance from many different vantage points. Our goal is to provide data driven analysis to the foundation and financial communities.