Private foundation assets grow; payout exceeds required 5%

Private foundations with assets under $50 million posted strong growth in 2013, a new report says.

Assets of those 84,000 foundations, which represent 98 percent of all U.S. foundations, grew 14.1 percent to $2.69 billion, says the 2014 “Annual Report on Private Foundations” from Foundation Source.

Those foundations also distributed 7.3 percent of their assets, exceeding the 5 percent payout for private foundations required by law, says the report, which is based on $148 million in grants by 714 Foundation Source clients.

The 2 percent of all foundations that are the largest, in comparison to those tracked in the report, hold roughly 70 percent of all foundation assets, Foundation Source says.

It was the second straight year assets grew at foundations in the report, reflecting “continuing and sustained recovery of the economy in general,” Foundation Source says.

“Endowment growth was the product of both investment returns and new contributions to the foundations by their funders,” it says.

Thirty-five percent of private foundations studied distributed over 10 percent or more of their assets.

Each year since the recession began in 2008, the report says, distributions by private foundations have consistently exceeded the 5 percent minimum, although aggregate giving in real dollars fell 2.5 percent in 2013, suggesting a “rebuilding” year by some foundations, the report says.

Foundations with assets under $10 million awarded nearly as much in general support as in grants for specific projects.

Foundation Source says that level of investment in general support contradicts the view “that foundations rarely provide general operating support.”

The report also says foundations with assets of $10 million to $50 million gave three times as much in grants for specific purposes as in grants for general support.

That suggests “a preference for project funding as foundations increase in asset size,” Foundation Source says.

Todd Cohen

Foundations prefer to go their own way

Private foundations typically do not collaborate with one another, like to find their own grantees and stick with them, prefer not to push their agendas on grantees, and prefer financial returns to investments that advance their mission.

Those are some of the findings of a survey of 198 private foundation donors that are clients of Foundation Source, a provider of support services for private foundations. Results were based on responses from 198 donors, most with private foundations with less than $50 million in assets.

Only 1 in 4 private foundations say they collaborated on their philanthropy with other foundations over the past year and plan to continue collaborating, while 54.3 percent say they did not collaborate with other foundations over the past year and have no plans to.

Just over 1 in 5 say they did not collaborate but plan to in the near future.

Only 7.9 percent of foundations say they mostly fund organizations that submit proposals and requests, while 85.6 percent say they mostly find and choose on their own the organizations they support.

And nearly two-thirds of foundations estimate that at least 75 percent of their annual grantmaking goes to organizations they have supported in the past.

Only 22.5 percent of respondents say foundations should “direct nonprofits to carry out the foundation’s own vision and ideas,” while 77.5 percent say foundations “should support nonprofits without telling them what to do because it negates the value of nonprofits’ ‘on the ground’ knowledge.”

On investing their assets, 53.9 percent of foundations say getting the greatest return on investment is of primary importance, while 46.1 percent say choosing investments that advance their mission is the top priority.

Nearly half of foundations typically provide general support to nonprofits without restrictions.

In determining whether to make a grant, 37.4 percent of foundations say personal knowledge of a nonprofit or previous experience with it is the most important factor, while 25.6 percent say the main factor is  “clear evidence of demonstrable impact.”

And 96.4 percent of foundations characterize as “fair” or “excellent” the way nonprofits are run.

Todd Cohen

Private funders post strong growth

Private foundations with less than $50 million in assets saw big increases in 2012 in their endowments, in their giving, in contributions from donors, and in returns on investments, and they paid out in grants and overhead more than twice the level required by the IRS, a new report says.

Aggregate assets held by 732 clients of Foundation Source grew 10 percent to $2.1 billion at the end of 2012, compared with a year earlier, while giving by those foundations grew to $215.7 million in 2012, up 9.2 percent from $197.5 million a year earlier, says the 2013 Annual Report on Private Foundations from Foundation Source.

Donors added $1.06 for every dollar the foundations spent on grants and charitable expenses, up from 93 cents a year earlier.

Investment returns totaled 9.3 percent up from a loss of 1.5 percent in 2011, and a loss of 4.3 percent from 2008 to 2011.

While the IRS requires that private foundations make charitable distributions, including grants and charitable expenses, equal to 5 percent of their assets, charitable distributions by private foundations in the study totaled 11.7 percent of the average value of their assets, up  from 11.2 percent in 2011.

Because the distribution requirement is based on a share of each foundation’s endowment, Foundation Source says, as assets grow, the distribution must grow proportionately to keep pace.

“The fact that the distribution percentage increased over 2012 means that the relative rise in charitable disbursements not only kept pace with the endowment growth, but actually exceeded it over the same period,” Foundation Source says.

Andrew Schulz, national director of community and legal relations at Foundation Source, says the findings in the report indicate that private foundations with less than $50 million in assets, representing 98 percent of the roughy 86,000 private foundations in the U.S., have begun to stabilize along with the economy overall.

Foundations of that size “were not ‘catching their breath’ in 2013,” Schulz says in a statement. “Private foundations that had stood strong in difficult economic times continued to step up,” he says, “suggesting that regardless of what lies ahead in 2013, foundations with assets under $50 million will continue to respond robustly and provide vital support for the nonprofit communities they serve.”

Todd Cohen

Giving grows at private foundations

Private U.S. foundations with less than $50 million in assets gave 9.1 percent more in grants in 2012 than in 2011, preliminary findings from a new report show.

Giving by foundations with $1 million to $10 million in assets grew 21.5 percent, while giving fell 0.4 percent for foundations with under $1 million in assets, and was down 1.5 percent for those with $10 million to $50 million in assets.

The preliminary findings are based on grantmaking by 732 clients of Foundation Source, which in May plans to release its 2013 Annual Report on Private Foundations.

Foundations with endowments of less than $50 million represent 98 percent of roughly 80,000 private foundations in the U.S., Foundation Source says.

Grants and charitable expenses combined, known as “qualifying distributions,” grew to 11.7 percent of assets for private foundations, up from 11.2 percent in 2011.

Qualifying distributions fell to 22.2 percent of assets from 22.6 percent among foundations with assets under $1 million, grew to 13.5 percent of assets from 12.3 percent among foundations with assets of $1 million to $10 million, and were flat at 8.7 percent among foundations with assets from $10 million to $50 million,.

The share of giving to international causes, arts and culture, and human services all grew, while giving to other causes fell or was flat.

Education received the biggest share, 25.7 percent, down from 27.1 percent in 2011, followed by public affairs and society benefit, which received 16.8 percent, down from 18.7 percent in 2011.

Grants of less than $1,000 grew 16.8 percent in value, compared to increases of 16.2 percent for grants between $100,000 to $1 million, and 4.9 percent for grants between $1,000 and $10,000.

— Todd Cohen

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

Private-foundation assets lag pre-recession levels

Most private foundations have not regained the asset value lost from the collapse of the capital markets that began in September 2008, a new study says.

At the end of 2011, the endowments of private foundations with under $50 million in assets were still nearly 9 percent below their pre-recession values, says the study by Foundation Source.

Those foundations account for 98 percent of the roughly 80,000 private foundations in the U.S., the study says.

With donors contributing as much new capital to their foundations each year as the foundations grant out, it says, donors to private foundation since 2007 contributed fresh capital to their foundations at the rate of 104 percent of the amount the foundations made in grants, a percentage that does not include foundation expenses.

Despite growth in 2009 and 2010, asset levels at foundations fell 3 percent on average in 2011.

New capital contributions in 2011 grew 19 from the previous year but still funded only 84 percent of total grants plus expenses, compared to 72 percent in 2010, 94 percent in 2008 and 111 percent in 2009.

The study is based on data from 519 private foundations clients with assets under $50 million.