Foundations focus on building community

By Todd Cohen

[Note: This was written for Blackbaud.]

Public and private foundations increasingly are working to serve as “connecting” institutions for communities defined by geography or a cause, partnering with donors to identify their communities’ needs, and developing and funding efforts to address them, said Siobhan O’Riordan, senior vice president of engagement at the Council on Foundations.

Community foundations, for example, are “partnering with community leaders to listen and identify what key needs are and then partner with donors to meet needs,” O’Riordan said.

Shifting strategies

As a result of partnerships with foundations, donors are diversifying the strategies they use to make gifts, she said.

“Perception is moving away from donor-directed funds,” she said. “Instead of donors using community foundations as a service to allocate funds, donors are understanding that the community foundation has a vital role in meeting core needs so that they can begin giving to funds that meet their interests.”

Funds of interest typically have a specific area of focus, and community foundations aggregate those funds “and steward them and deliver impact on interest areas through grantees who are doing the work in the community,” O’Riordan said.

Food in Northern Virginia

Lara Kalwinski, director of national standards and counsel at the Council on Foundations, said the Community Foundation for Northern Virginia in Arlington “sees part of its role as not just talking to donors but also to the community and nonprofits that serve community needs.”

This year, Capital Area Food Bank in Washington, D.C., which serves northern Virginia, asked the Community Foundation for support in addressing hunger in Manassas, where few philanthropic dollars are available.

The Community Foundation, in turn, talked to its donors, including one who has a donor advised fund at the Foundation. It then agreed to fund a program at the food bank for one year “because of the connections that the community foundation has, not just the connections to money but to the community, responding to its needs, and knowing how to pool resources to address those needs,” Kalwinksi said.

“When a community foundation is articulate on the needs of a community because they’ve listened to the community, they have the ability of connecting — where a donor might be interested — to what is actually happening,” she said. “Public foundations understand how to engage in that role. Any time they can have a better conversation with that donor, the likelihood of making a connection that leads to trust — and ultimately a gift — is greater.”

New tools

O’Riordan said that as community foundations increasingly play the role of connecting institutions, they are “diversifying the tools they fundraise with and the tools they partner with and they grant with.”

Foundations are moving beyond their traditional focus on philanthropy, donor advised funds, and money, she said. “There’s a more systemic understanding than the informal aspects of philanthropic success in the past: how do you build trust, sustain credibility, and embrace community leadership.”

So community foundations are working with donors to create “directed funds” and “field of interest funds” to address specific causes and issues they care about, she said. “They’re providing donors with greater opportunities to engage through community conversations. They are diversifying their strategies and their tools but they’re doing it because they really are anchoring themselves in what it means to be a community.”

Community foundations also are using “impact investing” that aims to address social and environmental problems by making alternative investments such as loans to nonprofits or allocations to socially responsible investments.

Expertise and technology

Faced with the sophisticated technology available to donors from large commercial gift funds such as Fidelity Charitable, community foundations increasingly will need to emphasize their community connections and invest in “user-friendly” technology to differentiate themselves in the marketplace, O’Riordan said.

“There are opportunities to better use technology to leverage the community knowledge and connections that community foundations bring,” she said.

Community foundations also can use technology to make it easier for donors to give, particularly to relief efforts in the wake of natural disasters or in the face of crises that require a quick response.

Diversification and data

With growing competition for donors, shrinking government funding, and rising community needs, community foundations also face the ongoing challenges of creating development plans that call for a diversified revenue mix and developing tools to evaluate and track their impact and those of their partnerships.

In addition to using the traditional strategy of donor advised funds, for example, community foundations increasingly are working with donors to create interest-area funds, endowments, and funds held by private foundations and corporate partners, O’Riordan said..

Community foundations also are creating “giving days” that invite donors to give online or through email on specific dates or to support specific causes.

And foundations are looking for ways to evaluate the effectiveness of the programs they fund and to measure the difference those programs make in the community.

Data and the stories they tell are critical for all foundations that want to move the needle on community issues, including foundations that pool resources so they can have a “collective impact” on important community issues, O’Rioridan said. And technology can help gather and make sense of that data.

“If they position themselves as a backbone organization that is able to accept funds from different community stakeholders, and deliver on that, and do the evaluation and be able to assess and speak to the impact, they play a vital role in the community,” she said.

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Investment returns grow for private foundations

Investment returns for private foundations grew to an average of 15.6 percent in 2013, net of fees, marking the second straight year of double-digit average returns, a new study says.

That growth compares to average returns of 12 percent in 2012 and average losses of 0.7 percent in 2011, says the 2013 Council on Foundations-Commonfund Study of Investments for Private Foundations.

The study, based on data from 153 private foundations with combined assets of $94.1 billion,  says foundations with assets over $500 million posted the highest returns net of fees, 16.5 percent, compared to 15.5 percent for foundations with assets from $101 million to $500 million, and 15.2 percent for those with assets under $101 million.

Three-year returns averaged 8.7 percent, up from 7.9 percent in 2012, while five-year returns surged to 12 percent from 1.7 percent, reflecting the fact the the loss of 25.9 percent in 2008 no longer is included in the calculation.

Ten-year returns averaged 6.8 percent, down from 7.9 percent in 2012.

As markets have recovered, foundations are increasing their return targets again, cautiously, as they continue to rebound from the financial pain of the collapse of the economy in 2008, the report says.

“With double-digit returns for the second year in a row, private foundations have regained solid financial footing positioning them well for community investment,” Vikki Spruill, president and CEO of the Council on Foundations, and John S. Griswold, executive director of Commonfund Institute, say in a statement.

Mission-related spending

Fifty-six percent of participating foundations increased mission-related spending, up from 47 percent a year ago, while only 26 percent decreased mission-related spending, down from 32 percent.

Asset classes

Domestic equities yielded the highest average returns, 31.8 percent, compared to 15.9 percent for international equities.

Returns averaged 7.3 for alternative strategies and 0.1 percent for short-term securities/cash/other, and a loss of 0.7 percent for fixed income.

Asset allocation

Asset allocation included 24 percent for domestic securities, down from 26 percent in 2012; 9 percent for fixed income, down from 11 percent; 20 percent for international equities, up from 16 percent; 42 percent for alternative strategies, flat from 2012.

Spending

The “effective spending rate” among participating foundations — the amount spent on mission divided by the foundation’s market value at the start of the year — grew to 5.5 percent in 2013 from 5.4 percent in 2012, returning the effective spending rate to the level reported in 2011.

Among all participating foundations, 36 percent reported an increase in their effective spending rate, 43 percent reported a decrease, and 16 percent reported no change.

Resources, management, governance

Private foundations on average employed the equivalent of 1.3 full-time professional staff devoted to investments, down from 1.4 in 2012 and 1.5 in 2011.

Twenty-five percent of all study participants, and 58 percent of foundations with assets over $500 million, employ a chief investment officer, while 73 percent of all participants use a consultant, down from 80 percent a year ago.

Thirty percent of participants have substantially outsourced their investment function, down from 38 percent last year, marking a return to the level reported in 2011.

Ninety-nine percent of participating foundations reported they have a conflict-of-interest policy.

Todd Cohen

Community foundations see growth in assets, gifts, grants

Assets of community foundations in the U.S., as well as gifts to them and grants from them, all grew in 2013 compared to 2012, a new report says.

Assets grew at nearly all the 285 community foundations surveyed, and 90 percent of those foundations now manage assets that exceed levels in 2007 before the economy collapsed, says Guideposts for  Growth and Aspirations, a report from the Council on Foundations and CF Insights.

It says donor advised funds continue to drive growth and grantmaking for community foundations, representing roughly 40 percent, on average, of total gifts they receive and grants they make.

Administrative fees continue to represent the most significant revenue source for community foundations, the report says, and operating budgets to continue to grow as community foundations invest more in staff and leadership.

Assets, gifts, grants

Total assets of community foundations grew to $66 billion in 2013, up from $58 billion in 2012.

Total gifts to community foundations grew to $7.5 billion from $6.9 billion, while while total grants they made grew to $4.9 billion from $4.5 billion.

Assets grew 15 percent for community foundations, regardless of the size of their total assets.

While big gifts can have a big impact on the average change in assets for community  foundations, the report says, overall there was no change in average gifts between 2012 and 2013.

However, assets grew 12 percent for foundations with more than $250 million in assets, while they fell 7 percent for foundations with $50 million to $249 million in assets, and grew less than 1 percent for foundations with less than $49 million in assets.

Grantmaking

Grants from community foundations grew 11 percent for those with assets of more than $250 million, 13 percent for those with assets from $50 million to $249 million, and 9 percent for those with assets of less than $49 million.

Grants grew for nearly half of community foundations surveyed, and fell for roughly one-fourth.

Compared to assets and gifts to community foundations, grants tend to be steadier from year to year because of the impact of spending policies applied to endowed assets, the report says, , although the prevalence of non-endowed donor advised funds under management also can have an impact.

Donor advised funds

Community foundations surveyed hold more donor advised fund assets than Fidelity Charitable, Schwab Charitable and Vanguard Charitable — the three largest national providers of donor advised funds, the report says.

Community foundations held $20.3 billion in donor advised funds in 2013, up from $16.3 billion in 2012, compared to $18.78 billion in 2013 held by the three national donor advised funds, up from $13.6 billion in 2012.

While national donor advised funds received $6.6 billion in gifts in 2013, compared to $4.3 billion in gifts to the donor advised funds at community foundations, total grants from the two groups were similar — $2.9 billion from the national donor advised funds, compared to $2.6 billion from donor advised funds at community foundations.

Administrative fees

Administrative fees still provide the most significant revenue source for community foundations, regardless of asset size, the report says.

Still, it says, larger community foundations, or those with assets of more than $250 million, depend more heavily on revenue from administrative fees than do smaller community foundation, which count on other revenue streams like fundraising and disbursements from operating endowment and reserves.

Administrative fees represented 75 percent of $5.9 million in average total revenue at community foundations with over $250 million in assets, 73 percent of average total revenue of $1.5 million at community foundations with $50 million to $249 million in assets, and 61 percent of average total revenue of $447,000 at community foundations with up to $49 million in assets.

Operating  capacity

Over three-fourths of community foundations surveyed invested more in their operating expenses in 2013 than in the previous year.

And operating budgets that grew at community foundations operating budget increased 17 percent on average.

The share of community foundations that increased their operating budget grew to 77 percent in fiscal 2013 from 72 percent in fiscal 2012 and 2011, 48 percent in fiscal 2010, and 54 percent in fiscal 2009.

Spending on staff

Costs associated with staff salaries and benefits represented roughly two-thirds of total  community foundation expenses in fiscal 2013, on average, regardless of asset size.

Average staff size, and staff costs as a share of total costs, were 39 and 64 percent, respectively, at community foundations with over $250 million in assets, 12 and 62 percent at community foundations with $50 million to $249 million in assets, and 4 and 61 percent at community foundations with less than $49 million in assets.

Todd Cohen

Foundation salaries grow slightly

Most U.S. foundations paid slightly higher salaries in 2013, and women continued to account for most of foundations’ staff  and CEOs, a new report says.

The median salary for full-time jobs at foundations was $74,061, up slightly from 2012, says the 2013 Grantmakers Salary and Benefits Report from the Council on Foundations.

The increase in median salary slightly outpaced the Consumer Price Index rate of inflation over the five years, says the report, which is based on responses to an online survey of 936 grantmakers that reported salaries for a total of 8,404 full-time employees.

The grantmakers represented a total of $249 billion in assets and $15.1 billion in giving in 2012.

More than four-fifths of grantmakers increased salaries in in 2012, nearly nine in 10 planned salary increases for 2013, and just over two in five granted bonuses in 2012, a slight increase from 2011.

Women held 75 percent of full-time jobs at foundations, and accounted for 54 percent of foundation CEOS overall but only one in four CEOs at foundations with $1 billion or more in assets.

Racial and ethnic minorities accounted for 24 percent of foundations’ full-time staff in 2013 and eight percent of foundation CEO’s overall but represented 21 percent of CEOs at foundations with $1 billion or more in assets.

Over two in five foundation staff and 80 percent of foundation CEOs were age 50 or older.

Ninety-nine percent of survey respondents offered voluntary benefits to full-time staff, and nearly two in five respondents extended benefits to domestic partners, up from just under one in three in 2013.

Todd Cohen