Investment Challenges For Private Foundations

, By Douglas Moore, national director of estate & charitable planning, and Ajay Badlani, head of U.S.

By Douglas Moore, national director of estate & charitable planning, and Ajay Badlani, head of U.S.

Private non-operating foundations in recent years have faced increasing governmental scrutiny of their compliance with the Internal Revenue Code¹ and evolving prudent investor standards — as well as inconsistent equity market returns and low returns from fixed income.

Some investment advisors expect that in the next few years returns on traditional investments will be in the low-to-middle single digits. At the same time, possible increases in inflation could diminish spending power of private foundations. Investment returns may be insufficient to keep pace with required disbursements (qualifying distributions,² excise tax on net investment income³ and certain administration expenses) and inflation. Foundations may have to have minimum annual returns of 8.5 percent (due to disbursements and inflation) just to maintain the spending power of their investment assets.

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