Member-only story
The people running America’s foundations aren’t as smart as they think they are
The way they invest their endowments demonstrates that
This will be a relatively short rant, er, post because it updates an argument I’ve made before: That foundations are doing no good by trying to outperform the markets when they invest their endowments.
As a group, they cannot beat the markets.
Herd-like, they keep trying.
Worse, they pay their chief investment officers and Wall Street asset managers big salaries and fees even as those money managers produce, collectively, subpar returns.
Most foundations would do better by buying a mix of passive, low-cost index funds designed simply to match the overall market.
All of this hurts the nonprofit groups they fund.
Alas, this does not qualify as news.
Warren Buffett has made this argument. See my 2017 story, Warren Buffett has some excellent advice for foundations that they probably won’t take.]
So has the late, great David Swensen, Yale’s longtime chief investment officer. In a 2009 interview, Swensen told me that investors who rely on “low-cost, passively managed index funds” and rebalance regularly will “end up beating the overwhelming majority of participants in the financial markets.”
Most important, data drawn from public records consistently and reliably shows that the vast majority of foundations underperform the global equity and fixed-income markets, as I reported in a long story in 2018 for the Chronicle of Philanthropy. The headline, Billions Squandered, says it all.
This ought to be a scandal. Where’s David Fahrenthold when we need him?
In the meantime, we’re left with John Seitz, a former Wall Street analyst who several years ago started a company, Foundation Financial Research, which is the exclusive source for comprehensive financial data on private foundations. By publicizing the data and enabling foundation trustees to measure their performance against their peers, Seitz aims to help foundations — and the nonprofits they support — do more good. Most foundations do not disclose their investments or publish their…
