Foundation
A nonprofit legal entity established to support charitable, educational, or public benefit purposes, funded by an endowment or ongoing contributions.
Private foundations are subject to IRS minimum distribution requirements of 5% of assets annually. Foundations are significant LP investors in private equity and venture capital, often with long investment horizons and inflation-sensitive return targets.
The 5% distribution requirement creates a natural return hurdle — foundations must earn at least 5% plus inflation and fees just to maintain their real purchasing power. This drives many foundations toward growth-oriented and alternative strategies.
Frequently Asked Questions
What is a foundation in institutional investing?
A foundation is a nonprofit legal entity supporting charitable purposes, funded by an endowment. Private foundations must distribute at least 5% of assets annually per IRS requirements.
How do foundations invest?
Foundations invest across equities, fixed income, alternatives, and private markets. The 5% annual distribution requirement creates a return hurdle that drives many toward growth-oriented strategies.
How do foundations differ from endowments?
Both are nonprofit investment pools, but foundations have a mandatory 5% annual distribution requirement. Endowments have spending policies (typically 4-5%) but more flexibility in how they set distribution rates.
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