Private funders exceed required 5% payout

Private foundations consistently gave significantly more during even the worst of the recession than the 5 percent annual “payout” for grants and overhead required by federal law, a new study says.

Distributions for grants and charitable expenses averaged 11.6 percent of assets, and the total value of grants grew 4.5 percent, between 2008 and 2011, according to the First Annual Report on Private Foundations, a study from Foundation Source.

The study is based on data on actual transactions at 519 foundations that were Foundation Source clients all four years, 55 percent of those foundations with less than $1 million in assets, 39 percent with assets from $1 million to $10 million, and 6 percent with assets from $10 million to $50 million.

Foundations that size account for 98 percent of the roughly 80,000 private foundations in the U.S., Foundation Source says.


The entire increase in aggregated giving was attributable to foundations with assets between $1 million and $10 million.

That overall increase also was in spite of across-the-board declines in endowment values.

Seventy-one percent of all foundations saw the value of their endowments decline 12.5 percent on average between 2008 and 2011.

Foundations tended only about half the time during the period to repeat support to nonprofits they previously had funded, and to direct the other half of their grant support to new grantees.

Giving by smaller foundations was unchanged, and granting by bigger foundations fell 6.9 percent.

Asset growth, decline

Between 2008 and 2011, endowments of foundations with assets under $1 million fell 22 percent as a result of cumulative investment losses, charitable distributions and new funding equal to only 81 cents for each dollar paid out, the study says.

Foundations with assets over $1 million saw their endowment values fall under 8.9 percent, again because investment losses, spending and asset replenishment of only 88 cents for each dollar paid out.

Asset allocation

Among the four classes of assets, including cash, equities, fixed income, and alternative investments, the number of foundations using alternative investments such as private equity, real estate and commodities as part of their diversification strategy shifted most significantly during the period, the study says.

On Dec. 31, 2011, 49 percent of foundations had built alternative investments into their investment strategies, up from 38.3 percent on Jan. 1, 2008.

For private foundations with assets between $1 million and $10 million, alternative strategies as a share of assets grew to 60.1 percent from 41.6 percent for the same period.

Cash allocations fell to 12.5 percent from 18.3 percent, while fixed income allocations grew to 27.6 percent from 16.2 percent, and allocations to alternative strategies for private foundations overall remained flat at roughly 14 percent of assets.

And for every dollar a private foundation granted to a nonprofit or paid as a charitable expense during the period, 88 cents was received in newly contributed capital from the foundation’s donors.

While that ratio was even higher before the recession, the study says, it shows foundation endowments are “continuously replenished — even during recessions.”

In contrast, it says, many of the biggest foundations in the U.S. generate revenue only from their investments.

Todd Cohen

One response

  1. I did get this and, yes, “Go Foundations!” *Margo Jarvis* Research/Analysis & Special Projects Director Arts Council of Fayetteville/Cumberland County 301 Hay Street * Fayetteville, NC 28301 Phone: 910-323-1776 ext. 222; Fax: 910-323-1727

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