Top foundations' 10‐year plunge into alternatives yields mixed results and high fees

Private foundations control a sizable pool of investment capital. This paper examines the endowment returns of private foundations. Over the 10‐year period, 2006–2015, the top 56 of these organizations fully embraced the “Yale model” of portfolio construction. As a group, they substantially cut allocations to publicly traded stocks and bonds in favor of illiquid alternatives that supposedly offered higher returns and lower volatility. Despite pursuing risky investments in illiquid alternative assets, our study concludes that the foundations were not “paid” for illiquidity in terms of a meaningfully return premium (vs. public markets). Moreover, their annual return volatility, or risk, was similar to either a 60–40 composite index portfolio or a typical public pension plan, both of which had lower equity‐type exposure and greater liquidity. The implication is that foundations can achieve the same returns with better liquidity and/or lower risk with passive investments in broad index mutual funds or similar vehicles. In addition, we estimate the third‐party money management fees of the top foundations to equal 1.43% of the assets for the fiscal year 2016. This 1.43% is a sizable number when compared to the 5% of assets (including overhead expenses) that the federal government requires that foundations distribute each year in furtherance of their charitable missions.     

A growing tradition?

This article develops a basic knowledge of African American family foundations from which additional research can be generated. It addresses the following questions: From what types of professional backgrounds do the founders of African American family foundations hail? In which areas of the country are African American family foundations located? What is the range of assets possessed by African American family foundations, and how are these assets managed? How do African American family foundations use board members, employees, and volunteers to support their organizations? What are the overarching goals of African American family foundations? And in what areas are they concentrating their donations?     

British foundations: the organisation and management of grant-making

This article describes three ideal-typical cultures of grant-making constructed in the light of data from an exploratory study of British foundations. These three cultures, representing the values and assumptions which inform the way in which foundations approach the task of making grants, have very different implications for the resources required by foundations and for organisational processes and procedures. The article goes on to discuss some of the organisational and management dilemmas of British grant-making foundations. Five key source of management difficulty in the grant-giving foundation are identified. First, grant-giving foundations face particular difficulties in identifying and assessing the relevance of their priorities; these difficulties stem from the nature of grant-giving and the foundation's relationship with its ‘customer-suppliers’. Second, grant-giving foundations must manage within the constraints imposed by limited choice of and time available from trustees. Third, grant-giving foundations must manage the potential tension between control by donors and trustees. Fourth, grant-giving foundations must work within financial and time constraints. Fifth, the management of grant-giving foundations may be further hampered by lack of adequate feedback. In this article, particular attention is paid to the first three difficulties.     

Marriage and the Allocation of Assets in Women’s Defined Contribution Plans

The goal of this paper is to understand the effect of family decision-making on the investment decisions of married men and women. Using data from the Survey of Consumer Finances, we investigate how the spouse’s relative control over financial resources in the household and the life-cycle stage affect the investment choices of married women and men. The results show that married women who have more control over the financial resources are less likely to invest their Defined Contribution Plans (DCPs) in risky assets. Also, women who are married to relatively older men are less likely to take on risk with their DCPs. There is little evidence that the wife’s characteristics affect the investment decisions of married men.     

Investing in Turbulent Times: The Investment Behavior of Polish Firms in the Early Transition

We examine the investment behavior of a sample of Polish industrial firms over the period 1991–1993 by means of a model that views investment flows as part of the firm’s effort to adjust its assets and liabilities so as to maximize the returns to the firm. We argue that the application of neoclassical models of investment is more appropriate in cases where net investment is positive and where the returns to other assets and costs of liabilities are stable. If firms are seeking to reduce their capital stock, then the major constraints are not financial but rather set by the speed of physical depreciation. If the returns to other assets or the costs of liabilities change, then the firm will be forced to reconfigure its balance sheet in a way that may be inconsistent with the neoclassical model of investment. This paper examines the adjustments undertaken by Polish firms and shows that firms that did make positive net investments in this period were influenced by their capital intensity, profitability and by their costs of and returns to financial assets. The explanatory power of the model is relatively high when compared to previous studies of the investment behavior of firms in the early years of transition.     

Foundations as investment managers part II: The performance

Foundations divide roughly into two groups in their investment behavior. Most follow an inactive, risk-averse style, focusing on income maximization rather than total return. Another, smaller group of foundations are more activist and aggressive, focusing on total return. This article analyzes the investment performance associated with these different approaches, showing that while a significant number of foundations are performing well, many others lag in their investment returns.     

Nonprofit Leader Perceptions of Operating Reserves and Their Substitutes

This exploratory study has three objectives: (1) to understand the various ways academics, consultants, and practitioners conceptualize operating reserves; (2) to explore differences among academic findings, consultant recommendations, and nonprofit leader perceptions of operating reserves; and (3) to identify how practitioners operationalize operating reserves within their organizations. Using intensive interviews with nonprofit executives, we find that the operating reserve ratio (ORR) commonly used in the nonprofit literature does not accurately indicate whether an organization holds an operating reserve according to nonprofit leaders. In addition, results indicate that experienced nonprofit leaders perceive a variety of other fund types including endowment and investment savings as well as ability to borrow, other assets, sister foundations, and donor networks as legitimate substitutes for a reserve.     

THE WORLD OIL CRISIS: A PORTFOLIO INTERPRETATION

This paper applies the mean-variance portfolio model to the analysis of one facet of the production decision confronting the oil exporting countries. Specifically we assume that the countries in question seek the optimal solution to the problem of diversifying their assets between oil reserves in the ground and other non-petroleum investment alternatives. With respect to the group of countries which tend to accumulate money resources in excess of their domestic development needs (e. g., Saudi Arabia and Kuwait) the availability of an "inflation-proof" investment outlet whose principal and interest are linked to a general index of the change in world prices is likely to enhance these countries' incentive to extract oil from the ground on portfolio considerations alone.     

Short-run adjustments in the family's investment portfolio

American families have been changing the way they allocate their investment resources. These changes have raised questions concerning the types of investment decisions families make. The objective of this research was to gain a better understanding of the types of investment trade-offs households made between financial, physical, and human capital assets. This was done by estimating a short-run stock-adjustment model of family investments using panel data from the early 1970's. From examining the empirical results, it appeared that during this historical period, choices about a husband's human capital investment were generally related to a household's physical and financial asset acquisition. In contrast, choices regarding the wife's human capital investment appeared not to be related to any of the more traditional household investment options. The implications of this study for increasing understanding of current household investment patterns are discussed in the concluding section of the paper.     

The role of Islamic and western foundations in education and research in the Arab world

This paper is an exploration of research funding by western, local and Islamic foundations in the Arab world. Arab and Islamic foundations supporting research present a very recent phenomenon, so their numbers are limited and basic institutional traditions are still being developed. At the same time, they do have their own ‘ideologies’ and their own experiences which are not the same as those of the West. The findings in this paper are largely drawn from three case studies of foundations in the Arab world. There are several differences among the cases, although all of them are acting as non-profit organisations funding research work and making grants to individuals and institutions. It is difficult to compare precisely the contribution of the three foundations in all aspects of grant-making, but we can build the comparison on the scope of activities and their final contributions in education and culture. This paper closes with a discussion of potential research agenda on the future role of foundations in this part of the world.     

Foundations and innovation in the nonprofit sector

Using a sample of 17 foundations that are at the forefront of encouraging innovation this study explored foundations' motivations behind funding innovation, their perceived ability to impact the levels of innovation in nonprofit organizations, and strategies that foundations are using or can use to encourage innovation in nonprofit organizations. The results showed that among the major motives behind funding innovation were leveraging the capital, honoring the foundations' core identity (mission and values), and desiring to encourage innovation in nonprofit organizations. Five strategies/mechanisms that foundations are using/can use to encourage innovation in nonprofit organizations were identified: (a) offering innovation awards/grants as catalysts for innovation, (b) providing risk capital and supporting early stage idea development, (c) educating other foundations on the value of innovation and serving in a convener role, (d) serving as thought leaders, and (e) increasing nonprofit organizations' capacity for innovation. Implications for practice are discussed along with recommendations for future research.     

Disaster resilience: what it is and how it can engender a meaningful change in development policy

Disasters pose a growing threat to sustainable development. Disaster risk management efforts have largely failed to arrest the underlying drivers of increased global risk: uncontrolled urbanization and proliferation of assets in hazardous areas. Resilience provides an opportunity to confront the social‐ecological foundations of risk and development; yet it has been vaguely conceptualized, without offering a concrete approach to operationalization. We propose a conceptualization of disaster resilience centred on well‐being: ‘The ability of a system, community or society to pursue its social, ecological and economic development objectives, while managing its disaster risk over time in a mutually reinforcing way.’ We present a conceptual framework for understanding the interconnections between disasters and development, and outline how it is being operationalized in practice.     

The Uniqueness of Nonprofit Finance and the Decision to Borrow

Previous studies of nonprofit capital structure (borrowing relative to assets) support contradictory decision models of borrowing, but with no control for an endowment effect, which this article shows to be an important factor in the decision to borrow. Well‐endowed nonprofits borrow more relative to their physical assets. When endowment and investment income are backed out of the data, nonprofits are seen to optimize the balance between debt and physical assets.     

Whole-Life Career Management: A Counseling Intervention Framework

It is widely recognized that career management and counseling require a consideration of work and nonwork roles. The author presents a career counseling intervention framework to help clients self-direct their careers and attain work-nonwork balance. Based on an action regulation approach, the framework consists of 4 stages: (a) clarifying goals across work and nonwork roles, (b) mapping resources and barriers related to goal attainment, (c) developing action strategies for goal attainment, and (d) monitoring and adapting goal pursuit across work and nonwork goals. The author outlines the theoretical foundations of this framework, provides a case study on how the framework can be applied in individual counseling, and gives examples of specific intervention contents. The framework provides a foundation for career counseling practice to assist clients in managing their careers while taking into account nonwork roles. Researchers can use this framework to gain a better understanding of career self-management from a whole-life perspective.     

Besser entscheiden im Team — aber wie?

Investment committees of banks, pension funds or investment clubs meet regularly. The members decide together about the allocation and the timing of their own assets or their customers assets. This article will point out some pitfalls and chances that are typical in this decision making process. Especial focus is set on financial psychological aspects with regards to information processing and decision making processes. At the end of the article the author will indicate a sustainable way to improve the quality of team decisions.     

Always Look a Gift Horse in the Mouth: Community Organisations Controlling Assets

The idea of community-based organisations (CBOs) owning or managing physical assets, such as land or buildings, has a long history in many countries. This paper examines policy and practice in the UK where there has been significant interest in this field. A variety of benefits have been attributed to the role of assets including motivating community engagement, providing a vehicle for outsourcing public services, or creating financially sustainable organisations. The empirical research reveals there is a heterogeneous set of CBOs holding assets, but the majority of them are small with few paid staff. The analysis proposes a spectrum of CBO types in the field. It concludes that policy makers will need to recognise that these types are informed by contrasting traditions, ideas and operating logics that affect their different practices and resource dependencies.     

Community Foundations: A Growing Resource for Community Development

Like many nonprofit organizations, community development corporations (CDCs) rely on various sources of funding and support for their activities in poor and distressed neighborhoods. Funders often include the federal government, state and local government agencies, financial institutions, and philanthropic organizations. The author explains how community foundations are different from other philanthropic organizations and describes the various mechanisms that community foundations use to support community development. She suggests that there is a natural fit between the purpose of community foundations and the philosophy of community development, concluding that it is important for CDCs, as well as other nonprofit organizations, to understand how community foundations are different from other philanthropic organizations so that they may better position themselves to take advantage of the many resources that community foundations bring to their communities.     

Does the degree of relative risk aversion vary with household characteristics?

This study examines household risk taking, using Swedish cross-sectional data based on tax returns from more than 7000 households for 1985. In contrast to previous studies, this study recognizes that households compose different risky portfolios because of their varying characteristics. This study also recognizes real assets as investment goods and takes into account the gains from diversification that emerge when real assets and financial assets are combined. The estimated risk aversion was found to be very large but not systematically correlated with any of the included variables, with the exception of age. The estimated age coefficient suggests that risk aversion increases with age.     

Taking risks in investing in the equity market: racial and ethnic differences

Some policy makers and policy analysts have proposed that Social Security should be privatized to enable participants to achieve higher returns through investment in the stock market. How well individual retirees would fare financially under a privatized system largely depends on their decision to invest in the equity market, rather than in other types of investment vehicles. For that reason, it is important to investigate the degree to which minority people are currently investing in this market. This article presents the findings of a study that compared the investment behavior of black and Hispanic people aged 51 to 61 with the investment behavior of their white counterparts. The major findings indicate that black and Hispanic people: (a) are less likely to invest in the equity market than are white people, and (b) tend to invest smaller percentages of their assets in the equity market. Implications for policy are discussed.     

Same Bed,Different Dreams? The Divergent Pathways of Foundations and Grassroots NGOs in China

The rapid rise of high-wealth individuals and foundations in China should be good news for China’s grassroots NGOs whose continued growth depends critically on their ability to mobilize domestic resources. As a number of Chinese philanthropy practitioners have noted, Chinese foundations and NGOs should be natural allies and strategic partners. Yet the reality is very different as foundations currently provide very little support to NGOs, particularly the more independent, grassroots NGOs that have few ties with the government. This paper examines the disconnect between Chinese foundations and grassroots NGOs, and whether progress is being made in closing the gap between them. It argues that one of the main reasons for the gap has to do with their very different development paths, which have engendered significant structural and cultural differences between the two.