How Are Foundations Doing?
In many ways, our story is very straightforward. We wanted to know how foundations’ investments were performing.
Our background in advising nonprofit organizations on their investments motivated us to want to take a closer look at foundation performance. Specifically, we wanted to know which foundations were doing well from an investment standpoint and which were doing poorly and see if there were lessons to be learned that foundations could apply to their own investment processes. We knew that foundations aren’t required to provide investment performance (and very few publish results), but we wondered if there was a way to accurately estimate performance?
Our path to obtaining foundation performance data led us to leave the investment management business in order to create the most comprehensive database of foundation financial data available anywhere and introduce innovative tools for trustees and investors to benchmark their foundation’s performance.
Financial Data from an Investment Perspective
When we looked for financial data on foundations, we found that most of the attention was focused on the $80 billion a year that foundations pay out to operating charities, ignoring the $1.2 trillion that stays in foundations’ portfolios and how it is invested. We knew that this information existed, but it was trapped in paper documents and silo-ed in other pockets of the financial and tax-reporting world.
Building a Data Set - Foundation Financial Research
Frustrated by the lack of financial data available, we decided to create a company, Foundation Financial Research, to build a unique data set containing all the foundation data in which we were interested tasked with extracting the underlying financial statements from the federal tax filings of all 40,000+ U.S. foundations with over $1 million in total assets. The assets of these foundations account for over 97% of total foundation assets.
By capturing over 10 years of data from over 400,000 filings, we built the most comprehensive database of foundation financials available anywhere. Our database includes hundreds of millions of individual data points and was specifically designed to capture data from an investment perspective. The figure below provides an indication of the process we use and the information we derive from our research.
Providing Context - FoundationMark
After building our data set, we had performance data on over 40,000 foundations and so could answer our original question regarding which foundations were doing well and which were doing poorly. Looking through the data, we saw that, overall, investment performance really wasn’t very good. We also realized that the performance data we had was in the wrong hands, namely ours, because we couldn’t do much about it. Instead, this performance data should be available to the people who can do something about it—foundations’ trustees. We therefore built FoundationMark to provide representative, independent, objective, and transparent indices for the foundation community. Additionally, we provide free, in-depth reports to trustees to help them benchmark their investment performance, fees, and peer group standings.
- Intuitive star rating system
- Performance relative to public markets
- Peer group data
- List of peers
- Disclosed investment expenses
Free individualized report for trustees on your foundation’s performance.
Finding Foundations - FoundationIQ
Returning to our original question of who is doing well and who isn’t and why, we thought that others might have the same questions, and so we built FoundationIQ, which is primarily a paid platform for members of the investment community designed to better serve foundations.
FoundationIQ offers multi-factor search capabilities, including searches by investment performance, portfolio strategy, asset level, location, and many other metrics.
News and Analysis - FoundationAdvocate
As mentioned above, we used to advise nonprofits on their investments—but we left that world to track the market from an “insider’s” point of view, essentially providing the data and information that we wanted when we advised nonprofits.
At FoundationAdvocate, we ask ourselves ‘How are foundations doing?’ every day. We publish a newsletter to share our thoughts and views on performance as well as provide resources and links that may be helpful in evaluating foundation performance.
We believe that creating a forum for discussion of performance will lead to better informed investors and hopefully better performance of foundations over time.
Simply put, better returns mean more money to charity.