Administration July 28, 2014

Foundations See Second Year of Double Digit Returns

July 28, 2014 (PLANSPONSOR.com) - Investment returns at private foundations rose to an average of 15.6% in 2013 – the second-straight year of double-digit average returns.
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According to the 2013 Council on Foundations-Commonfund Study of Investments for Private Foundations (CCSF), the highest return, at 16.5%, was earned by organizations with assets greater than $500 million. Foundations with assets between $101 million and $500 million realized an average return of 15.5%, while foundations with assets less than $101 million reported an average return of 15.2%. (All returns are net of fees.)

Looking at multi-year results, the 2013 study shows trailing three-year returns for participating foundations averaged 8.7% compared to 2012’s 7.9%. Trailing five-year returns jumped to 12.0% from 1.7%, as the poor return of 2008 (-25.9%) dropped out of the five-year calculation. For the trailing 10-year period, returns averaged 6.9% compared with last year’s 7.9%.

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By specific asset classes and strategies in fiscal year 2013, domestic equities produced the highest return—an average of 31.8%, double the 15.9% return reported for investments in international equities. Alternative strategies generated a return of 7.3%, while short-term securities/cash/other returned 0.1%. Fixed income produced a negative return in FY 2013 of -0.7%, as the gradual withdrawal of market support by central banks caused historically low interest rates to rise and bond prices to fall.

Within the broad category of alternative strategies, distressed debt produced the highest return for the second consecutive year, at 24.4%. Venture capital returned 14.2%, marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, event driven and derivatives) reported a 12.6% advance, and private equity (leveraged buyouts (LBOs), mezzanine, mergers and acquisitions (M&A) funds and international private equity) returned 11.4%. Private equity real estate (non-campus) returned 9.4%, and energy and natural resources returned 4.9%. Commodities and managed futures produced a negative return for the year, at -8.3%.

On December 31, 2013, participating institutions’ asset allocations were:

  • Domestic equities: 24% (compared to 26% in FY 2012);
  • Fixed income: 9% (11% in FY 2012);
  • International equities: 20% (16%);
  • Alternative strategies: 42% (42%); and
  • Short-term securities/cash/other: 5% (5%).

The number of full-time professional private foundation staff devoted to investments averaged 1.3 full-time equivalents (FTEs), a decline from last year’s average of 1.4 FTEs and 1.5 FTEs in FY 2011. Twenty-five percent of study participants reported having a chief investment officer, a figure that rose to 58% among the largest participating foundations with assets greater than $500 million. Seventy-three percent of study participants reported using a consultant compared with 80% one year ago. Thirty percent of respondents said they have substantially outsourced their investment function, down from last year’s 38%, and back to the level reported in FY 2011. Ninety-five percent of participating foundations reported they have a conflict of interest policy.

The average number of voting members on participating foundations’ investment committees was 5.5, up from 5.4 reported for the two previous years. The average number of investment committee members who are investment professionals was 2.4, down slightly from 2.5 last year, while investment committee members with alternative strategies experience stood at 1.6, down moderately from 1.7 reported for the last two years.

The CCSF includes data from 153 private foundations with assets of $94.1 billion. More information about Commonfund is at http://www.commonfund.org.

Products July 28, 2014

Firms Form Alliance for PRT Services

July 28, 2014 (PLANSPONSOR.com) – Penbridge Advisors and P-Solve have formed a strategic alliance that will allow sponsors of defined benefit (DB) plans to integrate pension risk transfer (PRT) information and advice within a fiduciary asset management offering.
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Penbridge Advisors, a Stamford, Connecticut-based provider of PRT-related services, will primarily help plan sponsors evaluate the cost-effectiveness of annuity buyouts relative to other pension de-risking strategies. Its services include PRT pricing and underwriting assessments, executive and board education, ongoing monitoring of buy-out pricing, evaluation and comparison of various insurance products, and other de-risking alternatives such as lump sums and liability-driven investing solutions.

P-Solve, a London-based provider of fiduciary asset management services for institutional investors, will work with plan sponsors to create and implement an investment and risk management plan to help achieve their pension de-risking and termination goals. The firm will also use its specialized investment skills and deep actuarial knowledge to help plan sponsors invest effectively to close a funding gap and ultimately to manage risk near and at termination.

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“P-Solve and Penbridge are well-positioned to provide the market with advice on PRT, as well as the tools to efficiently implement a PRT-focused investment strategy,” says Ryan McGlothlin, managing director and co-head of P-Solve’s U.S. business. He notes that many plans that have implemented de-risking strategies in order to eventually terminate do not target the actual plan termination liability as precisely as they could.

Steve Keating, co-founder and principal of Penbridge Advisors, says, “This alliance offers plan sponsors highly coordinated fiduciary asset management and PRT advice at each step of the pension de-risking process.”

More information about Penbridge can be found at http://www.penbridgeadvisors.com. More information about P-Solve can be found at http://www.psolve.com.

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