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In this issue of our Annual Trends Report series, we’re taking a closer look at how our sample of nearly 1,000 private, non-operating foundation clients allocated their endowment assets in 2022 and the net change in asset values due to inflows, outflows and investment performance during the same period. Read on to understand what these trends could mean for giving in 2023.

The study analyzed foundation asset allocation across five broad categories:
Investment Trends

Asset Allocation – All Foundations
Over the 22 years that we have worked with private foundations, equities have consistently represented the largest share of endowment portfolios which is understandable given the long-term investment horizon for most foundations.

While the foundations in the study maintained high exposure to equities, allocations to the asset class were down from 52% to 47% on a year-over-year basis. Allocations to alternative investments increased by 3.5% and allocations to fixed income increased by 1.5% during the same timeframe. The use of equities and alternatives varies significantly by the size of the foundations, while the use of fixed income, cash and other types of assets tends to be more consistent regardless of size.

Asset Allocation – All FoundationsAsset Allocation – By Foundation Size

Asset Allocation – By Foundation Size Smaller Foundations ($1-10M)
Smaller foundations had the highest allocation to equities and the lowest allocation to alternatives in both 2021 and 2022. As noted in prior reports, the proportionately higher allocations to fixed income and cash, relative to their mid-size and larger counterparts, aligns with the need for greater liquidity to fund the higher levels of overall giving that occur among smaller foundations.

Mid-Size Foundations ($10-50M)
The allocation to equities decreased most sharply among mid-size foundations, down from 55.1% in 2021 to 49.6% in 2022. At the same time, they increased their exposure to alternatives from 12.8% to 16.5%.

Larger Foundations ($50-500M)
As in previous years, the largest foundations in our sample had the lowest allocation to equities at 40.9% and the highest allocation to alternatives at 28.0% in 2022. Larger foundations currently maintain more than four times the exposure to alternatives as compared to smaller foundations, likely seeing the potential for enhanced returns and lower correlation with other asset classes as key benefits over the long-term.

Changes In Asset Values
The foundations in our study sample experienced considerable decline in their endowments – from $15.4 billion at the end of 2021 to $13.2 billion at the end of 2022 – due to the combination of grants, expenses and 2022’s negative portfolio performance. While smaller foundations felt the shift in conditions most acutely, the trend was widespread as foundations of all sizes showed a decrease in total assets ranging between approximately 14-17% on a year-over-year basis.

Changes In Asset Values Analysis of Changes in Asset Values
The foundations in our study experienced a decrease of 14.5% in their net assets in 2022 and a year-over-year change in asset value of -31.5%. Grants and expenses remained relatively flat from year to year, with lower contribution rates and underperformance of investments (both realized and unrealized) in 2022 as the biggest factors behind the decline. Grants and expenses accounted for 6.8% of outflows in 2022. Contributions were down year-over year from 9% in 2021 to 5.2% in 2022. Said another way, they contributed 52 cents to their endowments for every 68 cents disbursed as grants and charitable expenses. Incoming contributions are an important signal of ongoing philanthropic intent, but they can vary based on personal circumstances and market conditions as funders and their advisors look for the most opportune times to make tax-advantaged donations. As discussed previously, difficult market conditions and poor performance of key asset classes also played significant roles in the net negative change in asset values. The 2022 asset decrease was distributed across the three foundation cohorts relatively consistently; all of them experienced substantial declines in unrealized gains and gave less in contributions, as shown.

Analysis of Changes in Asset Values For more insights on how the changes in asset values varied by foundation size, check out the full report.

2022 was a challenging time of geopolitical instability, rising interest rates, record-high inflation and market volatility. Private foundations experienced a 14.5% decline in their growth and a 31.5% year-over-year drop in their asset value—a stark contrast to the robust economy of 2021 when their endowments enjoyed double-digit growth.

Foundations prevailed, however, and continued to increase their giving in 2022: The foundations in our study collectively gave $111 million more year-over-year, totaling $865 million. They granted more than their annual distribution requirement of 5%, and they pursued their core missions while responding to urgent needs triggered by natural disasters and political unrest.

While 2023 has delivered more stable conditions, there is still a healthy amount of uncertainty. As of early November, the S&P 500, the Dow Jones Industrial Average and the Nasdaq Composite all remain in positive territory. Inflation is lower than the peak highs seen in 2022, but prices are still high. Economic growth has been strong but show signs of a slowdown. The Fed did not raise rates in September, but may still hike rates again before the end of the year.

It remains to be seen whether the decrease in assets that occurred in 2022 will impact foundation giving in 2023 or whether the tentative signs of recovery are enough for committed philanthropists to give above required levels as they seek to effect change in the world.

Foundations’ success lies in their ability to focus on the long term. In our experience, they navigate the shifts in the economic environment and plan accordingly to ensure generous future giving.

We’ll be watching this trend closely and will report back. In the meantime, check out our full report for more insights on 2022 trends.

Questions About This Report Or Want to Learn More?
Whether you’re looking for support for your existing foundation or want to create a private foundation, our philanthropic specialists are here to help. To learn more, schedule a call with us or reach us at 800-839-0054. Together, let’s #begiving.

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