Smaller Foundations’ Endowments, Giving Increased Sharply in 2012

Robust investment returns brighten outlook of foundations with less than $50 million in assets

U.S. private foundations with less than $50 million in assets increased their grantmaking by 9.2% last year, spurred by a rebounding market and increases in their endowments, according to a new report from Foundation Source, released Wednesday.

Small and midsize foundations make up 98% of the 86,000 private foundations in the U.S., according to Foundation Source, which provides comprehensive services for private foundations.

The firm’s report was based on the transactions of 732 Foundation Source clients, collected between Jan. 1 and Dec. 31, 2012, according to a statement. It said the data, which are generalizable to the broader foundation community, represented 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.

The report found that in the aggregate, assets held by the foundations in the sample grew from $1.9 billion at the end of 2011 to $2.1 billion by the end of 2012, a 10% increase.

This was not the result of reduced grantmaking, as some might speculate, the report said. Rather, it owed to two factors:

  • Donors replenished foundation coffers by adding $1.06 for every dollar spent on grants and charitable expenses, up from 93 cents for every dollar spent in 2011.
  • In 2012, foundations enjoyed investment returns of 9.3%, up from a 1.5% loss in 2011 and a 4.3% loss in the period 2008 to 2011. Investment returns included interest and dividends earned and both realized and unrealized capital gains, but not new capital contributed by donors.

Small and midsize foundations in the study sample awarded grants of $215.7 million in the aggregate in 2012 compared with $197.5 million in 2011.

Foundations with asset of less than $50 million distributed an amount equal to 11.7% of the average value of their assets over the course of 2012, up from 11.2% for the same foundations in 2011.

The report noted that given the growth of their endowments, the 0.5% increase was 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.

That the distribution percentage increased over 2012 meant that the relative rise in charitable disbursements not only kept pace with the endowment growth, but actually exceeded it over the same period.

“Our findings indicate that as the economy began to stabilize, so too did this sector of the foundation community,” Andrew Schulz, Foundation Source’s national director of community and legal relations, said in the statement.

“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.”

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Read Smaller Private Foundations Continue to Show Their Mettle  on AdvisorOne.

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