At their summer meeting, board members of the Prentice Foundation pondered the good news from the markets. Since the beginning of the year, their endowment had grown by nearly one-third, to reach $44 million.
Rather than slowly increase payouts over several years as the foundation’s assets grow, the preferred method for most grant makers, Prentice opted to make a bigger splash. With its market windfall, the foundation, which is led by the heirs of the Prentice Hall publishing company, increased its grant budget by about 50 percent, or $1 million.
Other grant makers whose assets are rising fast are also bumping up their spending. In June, the George Gund Foundation doubled the percentage of its assets it makes in grants, resulting in a $64 million grant budget this year. Three months later, the Virginia Piper Charitable Trust in Arizona sent out $123 million in surprise grants to selected grantees, which went beyond its original budget for the year.
Not all foundations enjoyed the same percentage growth as Prentice, which invests all its assets in equities meant to contribute to a green economy. Investments made by foundations with assets greater than $500 million saw a return of 13.1 percent this year through November, according to calculations made by FoundationMark, an investment research company. The returns could be higher for foundations with heavy equity allocations. Some may have added billions to their endowment since the beginning of the year, FoundationMark says, noting that one of the biggest — the Lilly Endowment — now probably has $10 billion more in assets and is worth about $30 billion.
Four of the nation’s 10 wealthiest foundations — the Hewlett, Robert Wood Johnson, Open Society and Packard foundations — each added to their grant-making budgets over the year. Hewlett and Open Society each increased the amount they distributed by $150 million, Robert Wood Johnson added $100 million, and Packard boosted its grants by $97 million.
At Prentice, the president of the board, John Powers, says the asset run-up is like being at Las Vegas. “You go, sit on the table, and you make a bunch of money. I say, it’s time to take money off the table.”
Prentice dialed up its grant making because its grantees that work on climate change, reproductive rights, and strengthening America’s democracy are in the midst of severe crises, Powers says. He calls it a make-or-break moment.
“If we don’t give more away now, we’ll have a much bigger mess to try to deal with later,” he says.
Hewlett’s boost in grants will be spread across all its grant-making programs, with special priority for its work to protect U.S. democracy and efforts to curb climate change.
Open Society has dedicated the extra cash to gender equity and vaccine programs, and to promote an economic recovery. Packard used the added grant money to expand its support of efforts to curb climate change and to support Covid-response efforts. Robert Wood Johnson’s increase is going toward the development of health data systems that capture inequities in health care delivery, grassroots support for federal economic recovery plans, and increased general operating support for some grantees.
Gains Provide a Cushion
It is impossible to predict how the year will end on Wall Street as the spread of a new Covid variant has made for many queasy trading days in recent weeks. But the gains foundation endowments collected over the course of the first 11 months of the year, on top of a string of strong annual returns, have given many grant makers a cushion to increase grants without cutting into endowment growth, says John Seitz, chief executive of FoundationMark, which analyzes foundation investment returns.
Seitz says in dollar gains, the Lilly Endowment may be the biggest winner, thanks to a run-up in drugmaker Eli Lilly & Company stock, in which the foundation’s investment accounts are almost exclusively invested. Lilly declined to comment on the state of its assets or what it plans to do with investment gains.
(The Lilly Endowment is a financial supporter of the Chronicle.)
As assets have risen sharply, many nonprofits — and some grant makers — have intensified calls for greater spending by all philanthropies.
Even so, foundations that were set up to exist in perpetuity have long resisted such efforts, out of concern that big grant increases would cause their endowments to wither and handicap their ability to sustain the flow of grants into the future. Some are holding steady on that view, while others, like Prentice, are adopting more liberal spending plans.
Some philanthropies have found ways to increase grants without jeopardizing the growth of their endowments. Last year, three of the largest foundations — Ford, MacArthur, and Mellon — made large bond offerings that allowed them to pump more money to grantees without culling their assets.
Ford’s $1 billion bond allowed it to double grants in 2020 and 2021. MacArthur used debt to finance $125 million in grants, and Mellon’s bond allowed it to give $200 million more in grants without immediately slicing off of its assets; interest payments on the debt, however, will need to be made for years.
Not only did the debt offering make it easier to provide more grants, but the market gains of the past year mean that assets at those foundations are still growing fast. MacArthur and Mellon each ended 2020 with about $8.2 billion in assets. They both reported investment gains of more than 17 percent, or more than $1 billion apiece, this year through September. Ford declined to provide year-to-date return estimates.
This year, about two-thirds of 247 foundations increased their grant-making budgets, according to a study by the Center for Effective Philanthropy of grant makers with a wide range of asset sizes. One reason they increased spending: Assets grew so fast they had to spend more to meet the federal requirement they put least 5 percent of their assets each year into charitable activities.
The tendency of foundations to stick close to the 5 percent mandate, out of fear that they will run out of money at some point, frustrates Vu Le, a former nonprofit leader who writes about nonprofits on his blog NonprofitAF. Foundation board members, Le says, are “clueless and in denial” about today’s pressing needs and are incorrectly fixated on hewing close to a 5 percent payout.
“While they hoard money and intellectualize,” says Le, “people from marginalized communities are literally dying.”
Long-Term Concerns
One of the reasons people like Le are frustrated is nonprofits have argued for years to no avail that sticking to 5 percent distribution rates allows foundations to withhold money that could be put to use now.
Storme Gray, executive director of Emerging Practitioners in Philanthropy, a national network of grant makers, says that by holding on to investment gains, foundations are missing a chance to make transformational change on issues like racial justice.
“I can appreciate a foundation’s desire to want to make grants in perpetuity,” she says. “but the question that I’m left with is what are we perpetuating in that process?”
In recent years, some foundation leaders and wealthy philanthropists have joined the call. An effort last year led by a group of donors called Patriotic Millionaires, the Wallace Global Fund, and other grant makers called upon Congress to require foundations to distribute 10 percent of their assets each year for three years, a temporary doubling of the current payout rate.
The proposal faced opposition from groups including the Council on Foundations and hit a dead end in Congress. A big fear raised by the council was that if grant makers consistently gave away 10 percent of their assets, they would run out of money and be forced to shut down because investment gains could not keep up.
The Piper Trust has no plans to spend all its assets and shut down, but the organization’s board has become accustomed to occasional surges in grant making because its investment returns have always made up for the increases, says Mary Jane Rynd, the trust’s president.
From the beginning of the pandemic in March 2020 until June 2021, the assets of the $470 million Piper Trust increased by about $123 million. As the board gathered in June to discuss the grant maker’s financial position, Rynd expected the foundation to commit an additional $25 million this year.
It turns out that was the starting point of a bigger discussion.
“It just sort of blossomed,” Rynd says, before the board decided to put the entire amount of the pandemic gains into the hands of grantees.
The grant increase wasn’t spread to all the trust’s grantees across the board. Large health care systems that receive government funding were not given additional support, Rynd says, because the extra grant money wouldn’t likely have a major impact. And arts organizations that already receive government funds were excluded.
In total, 71 religious, human-services, arts, health, and education grantees got additional checks, including the Salvation Army, the Roman Catholic Diocese of Phoenix, and Black Family and Child Services of Arizona.
The Siegel Family Endowment, which supports workforce development, technology, and the design of physical infrastructure, has also increased its grant budget in response to several good years of market returns. But it is taking a gradual approach. Siegel plans to increase its $23 million grant budget by 5 percent each year for the next two years, says Katy Knight, the endowment’s president.
She says the foundation doesn’t think it is wise to give nonprofits a big influx all at once because it will make them dependent on the grant maker. If a nonprofit uses an infusion of cash to start programs, it might need more foundation support in the following years to help sustain them, she says. While it might seem generous, a big chunk of cash can bedevil nonprofits, considering that future grants are anything but guaranteed.
“The unpredictable nature of these sort of surges can make it hard for organizations to plan,” says Knight.
Multiple Increases
In Ohio, the Gund Foundation has faced ups and downs in its endowment values.
When Covid closed much of the nation in March 2020, its endowment sagged, but the foundation decided it needed to increase its grant distributions to 10 percent of its asset value to meet intensifying demands for help. At one point, the foundation’s assets hit a low of $467 million. By the end of the year, fortunes had changed, and Gund’s assets had rebounded to $627 million.
In June, the fund’s board decided to stick to a 10 percent payout plan for 2021. The foundation has been working to take restrictions off most of its grants, to allow grantees to use the money for general operations. But the payout increase went to specific projects that, Gund hopes, will help those nonprofits grow.
For instance, Gund gave $1.7 million to Karamu House, the country’s oldest African American theater company, to build an outdoor stage and make other capital improvements. And it provided $1.5 million to Say Yes to Education for scholarships to Cleveland students. The scholarship campaign stalled during the pandemic; the Gund gift is an effort to reignite fundraising.
The foundation worked to manage grantees’ expectations when it increased the amount it was distributing, says Catherine Gund, who chairs the grant maker’s board. But in keeping the support based on projects, rather then offering unrestricted grants, Gund, like the Siegel fund, didn’t want grantees to take on work they couldn’t follow through on.
“If people get more money than they expect and they do a lot of hires — if they don’t have that same budget the next year,” she says, “they have to fire people.”
