Let me tell you about the very rich. They are different from you and me. ― F. Scott Fitzgerald, The Great Gatsby
Suppose the Princeton or Yale endowment investment staff wanted to go all-in on a single stock? Forget diversification and the free lunches, just one shoot-the-moon can’t lose security. Think their trustees would go for it? Can elephants fly? Of course not.
And yet, this is the case for some of the biggest winners in the foundation world, funds like the Jen-Hsun & Lori Huang Foundation and the Lilly Endowment.
So, here’s a question. Does foundation management mirror the personalities and proclivities of their anomalous founders? And, if so, how have these various styles affected investment performance over the last five years?
For example, a preference for public markets versus alternatives, concentration versus diversification, or sports teams and crypto.
Awash in liquidity
Thanks to several extraordinary decades of wealth creation, (present speed bumps aside) private foundations and their ultra-high-net-worth benefactors are flourishing.
Over the last thirty years the number of foundations has tripled from about 40,000 in 1995 with assets of $373.4 billion to nearly 120,000 holding $1.6 trillion today.
Given a record $19.4 trillion in liquid assets in checking and savings accounts and money market funds, an S&P annual return of 9.33% over the last thirty years, and unabated philanthropic zeal among the 225,000 U.S. ultra-wealthy mega-donors, private foundations – the Getty, Casey Family Programs, the Summer Science Program – continue to play a major role in American life.
Jon Hirtle, executive chairperson of OCIO provider Hirtle Callaghan puts it this way:
Foundations are responsible for a meaningful portion of society’s accumulated and monetized patrimony. That financial patrimony is used to enhance social services, the arts, scholarship, research…human progress, if you will. So, better foundation investing means more human progress. How about that for an inspiring mission?
Ornery, reclusive beasts
A good many nonprofit CEOs and CIOs tell us that foundations do indeed reflect their creators – entrepreneurs who “move fast and break things” – and stand poles apart from their nonprofit cousins, college endowments.
Universities are used to scrutiny, or perhaps ‘resigned’ is a better word. Campus agitation and public reprobation are the yin and yang of university life and college endowments sit in the crosshairs.
Foundations and their patrons, by contrast, can be ornery, reclusive beasts. Try delving into the Mars or Walton family affairs.
Unlike academia with its traditions of open access and publish-or-perish, foundations have no impetus to reveal or publish much of anything, particularly investment data, and few do – less than .01%!
But no matter who’s driving the bus, for us the relevant questions remain the same. Who delivers top returns, what’s their edge, who do they invest with, and how are they paid?
Cold, hard facts
We are in the business of recruiting investment talent for our clients, nonprofits, family offices, OCIOs, and asset managers. And, at the risk of stating the obvious, when it comes to investment leadership, performance and the right teams are paramount.
Hence the Skorina Letter. For the last 20 years we have been out front in tracking and publishing investment performance, executive compensation, and CIO profiles, as well as producing our semi-annual OCIO directory.
But, in order to form an opinion and make a call we need data, cold hard facts to help us recruit, advise, and create advantage.
Who you ‘gonna’ call?
When it comes to foundation research, we head to FoundationMark. Mr. John Seitz, proprietor, and crew have developed a system which tracks and estimates the investment performance of most foundations in the nonprofit universe. Just what we need.
So, we asked Mr. Seitz if we could root through his vast and savory trove of data for some hoped-for clarity, our findings in the tables below. There’s lots to ponder.
For example, did you know that about 10% of the billion-dollar foundations have portfolios that are concentrated in a single stock, usually reflecting the founder’s source of wealth, like the two we mentioned above, the Lilly Endowment which has 93% of its assets in shares of Eli Lilly & Co. (LLY) or the Jen-Hsun & Lori Huang Foundation with 100% of assets in NVIDIA Corp. (NVDA).
At the other end of the diversification spectrum, while it’s true that about two thirds of foundations over one billion AUM deploy what we call an endowment style model, they do so with far more variety in their investment portfolios than their endowment cousins.
For a more granular look, email John Seitz or go to his website. He will be pleased to send a report to any trustee who wants a peer group analysis of their foundation.
Would you like to know if your investment expenses are higher or lower than your peer group? Mr. Seitz will send you the answer. No charge.
How we parse the data
FoundationMark tracks the 50,000 largest foundations and their portfolios. By examining their asset allocations and disclosed holdings, the firm assigns each entity a portfolio style.
For example, foundations that have large equity positions in a single stock like the Lilly Endowment or Jen-Hsun & Lori Huang foundation are classified as “Concentrated Equity,” while those with large allocations to ‘Investments – Other,’ are considered “Endowment Model.”
So, just to be clear, when we refer to “Alts” in our tables we are using the data listed in the ‘Investments – Other’ section in 990PF filings.
One more thing. Please be aware that 990PF data, though generally consistent, is not always clear or complete, and seldom timely – December 31, 2023, is our cutoff date for this report. And our performance numbers, as we mentioned above, are estimates from FoundationMark based on 990 data, not direct press releases from the foundations.
If you see a figure or estimate that you know is off and have an explanation and number we can publish, let us know. We’re happy to revise and send out an update.
Why two tables?
We needed more room to display our data than a page width allowed, so we broke our tables into two parts. Part I includes foundation names and titles, returns, and investment style. Part II includes the largest investment holdings, the names of the top managers listed in the 990s, and how much they were paid.
The ninety-seven foundations are in the same numerical order in each table for side-by-side comparisons.
And now, our foundation investment compendium.
