A strong stock market performance in 2021 fueled a rise in giving by private foundations last year, but the rockier year that followed could lead to fewer gifts in the future, according to an annual survey from Foundation Source, a Connecticut-based company.
Giving among 980 foundations surveyed rose 14.7% to US$865 million last year, while the number of grants made rose 7.1% to 31,373, the survey found.
The gifts represented 6.6% of total assets of the foundations surveyed, on average. That’s 1.6% more than the 5% payout required by federal tax law, but down from 7.3% the previous year, according to Foundation Source, which offers management services and expertise to these private organizations.
This relatively strong showing could change as the foundations surveyed also reported a 14.5% drop in net assets and a year-over-year drop in net asset value of 31.5% last year. The 5% payout requirement is based on an organization’s average investment assets from the previous year.
“Generosity and a deep commitment to philanthropy were certainly factors in this year-over-year uptick in giving,” Gillian Howell, head of client advisory solutions at Foundation Source said in an introduction to a report on the results.
“However, double-digit declines in endowment portfolios may signal a softer environment for giving between now and the end of the year,” Howell said.
Among the foundations surveyed, 73.2% had assets between US$1 million and US$10 million, 20.5% had assets between US$10 million and US$50 million, while 6.3% had assets of US$50 million or more.
These organizations represent a sliver of the more than 100,000 foundations in the country. According to IRS data in the report, 90.9% of private foundations have assets in the US$1 million to US$10 million range, 6.7% have assets between US$10 million and US$50 million, and 2.4% have assets above US$50 million.
The smallest foundations were the most generous. Those with assets of US$10 million or less granted 7.7% of their total assets last year, although that’s down from 9% in 2021; by comparison, the largest foundations gave 6.5% of total assets, down from 7% a year earlier.
Favoring Specific-Purpose Grants
Where the biggest slice of foundation money is going is a bit of a mystery. According to the survey, 20.3% of grants, or US$175 million, went to organizations that didn’t have an IRS classification last year, a situation that’s creating “a growing blind spot” in the philanthropic sector, according to the report.
The second largest category—so-called public and societal benefit groups—captured 19.5% of grants in 2022, up 2% from a year earlier. These nonprofits are involved in a variety of causes, including civil rights, social action and advocacy, community capacity building, and science and technology.
As these groups gained funding, grants to education slipped slightly by 1.8% to 18.1% of total grants; human services captured 12.9% of grants, a 1% decline from a year earlier, the survey found.
Most grants made last year fulfilled a private foundation’s specific charitable mission, even though nonprofits largely favor unrestricted grants that provide flexibility to respond to unexpected or critical needs. Last year, 66.1% of all grants made by those surveyed were for specific purposes, down slightly from 66.8% a year earlier.
Among foundations with US$50 million or more in assets, 77.5% gave specific-purpose grants, compared with 49.5% of grants made by organizations with US$10 million or less in assets.
The Role of Markets
The value of endowments of the 980 foundations surveyed fell to US$13.2 billion last year from US$15.4 billion a year earlier, driven mostly by lower contribution rates and underperforming investments.
Last year, the foundations surveyed had shifted some assets out of stocks and into alternative investments, such as private equity and real estate. The largest foundations, with US$50 million or more in assets, boosted their alternatives allocation to 28% of their portfolios from 24% a year earlier, while cutting their stock portfolios to about 41% from 45.8%.
Smaller foundations, with between US$1 million and US$10 million, increased their alternative investments to 6.8% of their portfolio from 5.6%, while slimming their allocation to stocks to a still hefty 58% from 62.5% a year earlier.
Read the full article here
