Foundation Source, the nation's largest provider of comprehensive services for private foundations, today released the 2013 edition of its groundbreaking Annual Report. The 2013 Annual Report on Private Foundations offers a first look into the 2012 investment and grantmaking performance of private foundations with less than $50 million in assets.
The report shows a marked 9.2 percent increase in giving over 2011, fueled by a rebounding market and donors making new contributions to their own foundation endowments. The complete report can be downloaded at www.foundationsource.com.
Until recently, few reports have focused exclusively on the sub-$50 million segment of the private foundation market. Foundations of this size account for 98 percent of the approximately 86,000 private foundations in the U.S.; however, data about this "super-majority" is scant because most foundation research looks only at the wealthiest grantmaking philanthropies.
Extrapolating data about the largest foundations to the entire foundation community can lead to significant misunderstandings about the sector as a whole and misrepresentations about private foundations in particular. Because the largest two percent of private foundations hold almost 70 percent of all foundation wealth, their investment and giving behaviors can differ dramatically from that of the average U.S. private foundation.
According to Foundation Source CEO King McGlaughon: "2012 was a breakout year for the private foundations in this report, as investment returns climbed, endowments grew by 10 percent, and charitable disbursements grew at an even faster clip. These results could differ appreciably from those recorded by the country's largest foundations, yet year-after-year it's the mega-foundations that influence overall perceptions about foundation performance. It's a distorting perspective. Foundation Source's Annual Report on Private Foundations provides much needed content and context, providing the philanthropic community and professional advisors with timely information about the 98 percent super-majority of foundations that comprise the bulk of the sector."
Top findings include:
1. Foundation endowments grew by 10 percent
In the aggregate, assets held by the foundations in the report grew from $1.9 billion at the end of 2011 to $2.1 billion by the end of 2012 (a 10 percent increase). Asset growth was fueled by both a substantial increase in new contributions to foundations by their donors (finding #2) and improved investment performance (finding #3). It was not, as some might speculate, the result of reduced grantmaking.
2. Donors increased contributions to foundations
Foundations replenished their coffers by adding $1.06 for every dollar spent on grants and charitable expenses. That's up from 93 cents contributed to the foundation for every dollar spent in 2011.
3. 2012 investment returns averaged 9.3 percent
In 2012, foundations experienced investment returns of 9.3 percent, up from a 1.5 percent loss in 2011 (and a 4.3 percent loss from 2008-2011). Investment returns include interest and dividends earned and both realized and unrealized capital gains (but not new capital contributed by the donor).
1 According to the IRS, in 2009 a total of 80,072 U.S. private foundations held assets of roughly $545 billion. Just 1.6 percent of these foundations were larger than $50 million and this small subset held a combined $379 billion or 69.5 percent of all private foundation assets.
4. Foundation giving grew 9.2 percent
Foundations in the study sample gave 9.2 percent more in 2012 than they awarded in grants in 2011. In 2012, they gave $215.7 million in the aggregate compared with $197.5 million in 2011.
5. Charitable distributions were more than twice the IRS-mandated 5 percent of assets
Foundations in the sample distributed an amount equal to 11.7 percent of the average value of their assets over the course of 2012-up from 11.2 percent for the same foundations in 2011. Given the growth of their endowments, the 0.5 percent increase is particularly noteworthy.
Since the distribution requirement is based on a percentage of each foundation's endowment, as assets increase, outlays must also increase 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's report is based on the transactions of 732 Foundation Source clients, collected between Jan. 1 and Dec. 31, 2012. The data, which is generalizable to the broader foundation community, represents actual, publicly-reportable foundation transactions (not surveys or estimates) recorded by Foundation Source as it processed grants and paid expenses on behalf of its U.S. clients and recorded investment information. Because most studies rely on data from foundation tax returns, there is typically a lag time of a year or more before information on foundation activity is publicly available.
According to Andrew Schulz, National Director of Community and Legal Relations at Foundation Source: "Our findings indicate that as the economy began to stabilize, so too did this sector of the foundation community. Moreover, these foundations were not ‘catching their breath' in 2012. Private foundations that had stood strong in difficult economic times continued to step up, suggesting that regardless of what lies ahead in 2013, the foundations with assets under $50 million will continue to respond robustly and provide vital support for the nonprofit communities they serve."
Foundation Source enlisted the aid of a Reviewers Panel to assess the significance of its findings, offer constructive feedback, and provide an outside perspective. An acknowledged group of private foundation experts, the panel consisted of Sharna Goldseker, Managing Director of 21/64; Tony Mayer, a Foundation Source client, a board member of Expansion Capital Partners, and former Chairman of the Ewing Marion Kauffman Foundation Board of Trustees; Kathryn Miree, President, Kathryn W. Miree & Associates, Inc., and co-author with Jerry McCoy of the Family Foundation Handbook (Summers Press, 2002); and Phil Shaffer, Managing Director, Wealth Management, Institutional Consulting Director, Graystone Consulting (a division of Morgan Stanley).
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