According to a new study from the Commonfund Institute, a financial research firm based in Wilton, Connecticut, private, community, and public foundations in the United States reported an average total return of 11.4 percent in fiscal year 2004, compared with a 17 percent return in 2003.

The report, Commonfund Benchmarks Study: Foundations and Operating Charities 2005, found that smaller foundations (those with assets of $10 million to $500 million) averaged an 11.8 percent return in 2004, compared to 11.1 percent return for larger foundations ($501 million to $1 billion in assets). The average reported return for all foundations over three years was 7.5 percent, while the five-year return was 3.9 percent.

Survey respondents also reported modest changes in allocations to fixed income, international equities, and cash, with allocations to domestic bonds falling, on average, to 82 percent, from 88 percent in 2003, and allocations to global bonds increasing to 8 percent, from 4 percent in 2003. Foundations also reported an increase in average allocations to alternative strategies (18 percent compared with 14 percent in 2003), with hedge fund allocations increasing to 50 percent (from 42 percent in 2003).

"The performance of foundations in 2004 shows strength and stability as the markets recovered from three very difficult years [FY 2000-2002]," said John S. Griswold, Jr., executive director of the Commonfund Institute. "Many foundations reported increases in alternative investments, and should continue to enjoy respectable returns, assuming improved diversification, due diligence, and good corporate governance."