U.S. foundations are showing double-digit year-over-year investment returns, while spending rates continue to dip, a report from the Council on Foundations and the Commonfund Institute finds.

The 2021 Council on Foundations-Commonfund Study of Investment of Endowments for Private and Community Foundations—the 10th annual collaboration between the partners—is based on investment returns, spending, and asset allocations across 231 participating private and community foundations representing combined assets of $119.7 billion. According to the report, private foundations reported an average annual investment return of 16.3 percent in 2021 (up from 13.1 percent in 2020), and community foundations realized a return of 14.8 percent (up from 12.1 percent). The largest foundations performed best; those with assets of more than $500 million reported returns of 21.6 percent for private foundations and 15.7 percent for community foundations, while returns for smaller foundations—still strong—ranged from 14.1 percent to 15.2 percent. Overall, the 10-year average annual return in 2021 was 9.7 percent for private foundations and 9.2 percent for community foundations. In addition, community foundations reported a 59 percent increase in donations (up from 45 percent in 2020) with a median increase in total donations of 84.8 percent (slightly up from 83.6 percent).

Despite increased assets, foundations reported a continued decline in their spend rate (the percentage of assets distributed). Private foundations reported a spend rate for 2021 of 5.1 percent (down from 5.6 percent in 2020 and 5.4 percent in 2019), while community foundations reported a spend rate of 4.6 percent (down from 4.7 percent and 4.8 percent).

The number of foundations adopting socially responsible investment policies continued to increase, with 23 percent of private foundations and 24 percent of community foundations making investments ranked high on environmental, social, and governance (ESG) criteria (up from 19 percent and 20 percent, respectively). Foundation commitment to working with diverse investment firms continued to gain traction with 17 percent of private foundations and 23 percent of community foundations investing with such firms (up from 11 percent and 13 percent, respectively).

“In such a tumultuous time in our society, it’s good to see the steps toward responsible investing and hiring diverse asset managers,” said Council on Foundations president and CEO Kathleen P. Enright. “It is a sign that more foundations are looking for mission-alignment and standards of integrity along with financial returns as they make decisions about their investments.”

(Photo credit: Getty Images/Kativ)