Lucy Bernholz, the most prescient analyst of future trends in philanthropy, is working on a book about the future of philanthropy and the social economy. So she has been using Twitter to ask people the following question:
“What trend, change, entity, idea will matter most to social sector in 2010?”
I thought I’d answer the question here and invite you to add your thoughts.
Foundations as Social Impact Knowledge Brokers
Foundation giving is going to fall off a cliff in 2010.
Private foundations are required to give away 5% of their investment assets each year (the average amount given is about 6%). The 5% is based on the average value of their investment assets from the previous year. That means that foundation giving in 2009 is based on 2008 asset levels and 2010 giving will be based on 2009 asset values.
The average value of the S&P 500 (the most important indicator of the stock market):
2009 (if the market closes the year at today’s value): 940
That means we can estimate that required giving from foundations fell 17% this year compared to last [See correction at end of post]. 2010 is going to see another massive leg down. If the market trades exactly sideways for the rest of the year, required foundation giving in 2010 is going to fall another 23% compared to 2009.
It gets worse.
This year, many foundations decided to keep giving levels constant with last year or at least gave more than the required 5%. It was clear that the need for charitable giving was higher than normal and many foundations stepped up with additional giving. To the extent their giving exceeded 5%, they can count it towards next year’s required giving.
An example: A 2009 payout of 7% means that the 2% that exceeded the 5% minimum can count towards 2010 and so the foundation can legally distribute only 3% next year.
In other words, from the standpoint of foundation giving, more than half of the impact of the stock market crash has yet to be felt.
But even with 40% or so less grant dollars, foundations’ knowledge about philanthropy is just as strong.
As we’ve been developing the Tactical Philanthropy Knowledge Network, I’ve been talking to foundations about their role in the philanthropic sector as due diligence experts. Lets look at the Firelight Foundation as an example.
The mission of the Firelight Foundation is to support and advocate for the needs and rights of children who are orphaned or affected by HIV/AIDS in Sub-Saharan Africa. They have a portfolio of roughly 200 African based grantees on which they’ve performed extensive due diligence and continue to monitor results. On their website, they already list their grantees along with a short description of each organization. Other foundations already make grants to Firelight as a way to leverage their due diligence (a form of regranting, which we discussed earlier this week).
With their grantmaking budget decimated in 2010, forward thinking foundations are going to look for ways to leverage other sources of charitable assets. Encouraging other foundations to support their grantees is the easy path. It is also a bit like rearranging the deck chairs on the Titanic. The big opportunity, the real lifeboat that can significantly offset the effects of collapsing asset values, is for foundations to extend their due diligence to major donors. Individual donors give $6.30 for every dollar foundations give. Helping these charitable dollars flow towards high performing, well vetted nonprofits is the most dramatic way that foundations can leverage their own giving.
I don’t think most foundations are going to pursue this path. But some groups get it. Firelight clearly does. Just yesterday a representative from a major San Francisco Bay Area foundation approached me to say just how much she supports this concept.
The full effect of the financial crises will not hit the foundation sector until next year. When it does, the thing that will matter most to the social sector will be whether the influence of the collective expertise of foundation employees is greatly diminished or whether foundations step up to the plate and find creative ways to get their knowledge into the hands of major donors.
9/28/09 – 8:30am – CORRECTION
In this post I suggested that the value of the stock market was the determining variable in valuing foundation assets. However, foundations invest in a wide range of asset classes. While directionally my comments are correct and while I stand by the thrust of the post, the percentage decline of the stock market overstates the degree to which foundation giving will be impacted.