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Life Health > Life Insurance

Family Foundations Consider Issue of Perpetuity vs Limited Life

By Michael S. Fischer

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Most family foundations in the U.S. are set up to exist in perpetuity, but the number of limited-life foundations is increasing. The decision to continue for generations or spend down is an individual one, and there are valid reasons for each approach, according to Susan Price, vice president of the National Center for Family Philanthropy, who moderated the Giving While Living  teleconference on Wednesday, sponsored by her organization and The Chronicle of Philanthropy.

In opening the session, Price said that regardless of where a foundation is on the perpetuity versus spend-down decision, “we at the National Foundation believe it’s really important for boards to review the decision periodically as part of good governance.”

The teleconference brought together the leaders of two foundations that plan to go out of business in the next decade to discuss their decisions. Gara LaMarche (left) is president of The Atlantic Philanthropies, and Lenore Hanisch is co-executive director and board and family member of the Quixote Foundation. The Atlantic Philanthropies, which had given away some $5 billion through 2009, will spend down its remaining $3 billion in 2016 and close its doors in 2020. Quixote, with some $15 million in assets, will conclude its grant-making in 2016 as well and shut down the foundation the following year.

Hanisch said that taking up the question of how long Quixote should exist and for what purpose allowed the board to look strategically at how it wanted to respond to a deep sense of urgency among its grantees and its ability to do so. “During the past year, the board’s conversation has been about having impact and the most impact we can have. For the areas we’re investing in, we think putting it out there all on the table is the best investment we can make.”

The Atlantic Philanthropies’ decision to spend down had been in place for several years before LaMarche joined in 2007, and he said he had no interest in revisiting that decision. “It’s always possible to change your mind against perpetuity; it’s harder to reverse once you’ve decided to spend down your assets.” Now, he said, there is a sense of urgency about of the kinds of problems with which the foundation is concerned—health, human rights, aging, young people—“and we’re able to throw concentrated resources into it.”

Hanisch encouraged boards that have never discussed the spend-down issue to think of it as an exercise about what success would look like in five, seven or 10 years. “It’s a very powerful exercise when you do that and think about not being there after those five, seven or 10 years. What we’re hoping to build into the DNA of philanthropy is that in asking the question, you’re asking whether the timeline of institutional perpetuity is still the right strategy for what you want to accomplish in perpetuity.”

LaMarche acknowledged the concern of some observers about spending down that there needs to be a steady source of support for various field over a long period of time. “But that seems to be premised on the notion that there is a fixed body of philanthropic money that could be reduced by somebody spending down.” He dismissed this by noting that philanthropic resources are constantly being replenished by new donors coming into the arena. The Gates Foundation, for example, did not exist 15 years ago.

How has the question to spend down affected the two foundations’ grant-making? Hanisch (left) said that the decision has an emotional component (“We have formed some deep partnerships with our grantees, and it’s saying good-bye to relationships”) that is important to acknowledge. By announcing Quixote’s closure six years in advance, the foundation gave both itself and its grantees time to adjust and think together about what they want to see happen for their organizations, staff, planning and programs and how the foundation can support them, as well as about any contingencies that might arise in the interim.

She said Quixote has decided to go deeper with its current grantees and to take few new applications. At the same time, it wants to be flexible and nimble enough to jump in if an opportunity should present itself.

The Atlantic Philanthropies is sometimes the only funder in the seven foreign countries in which it works and is often a very significant donor in the areas it supports in the U.S., according to LaMarche. “That gives you a special obligation to work closely with grantees about your exit because the rest of the field is not as large, and the dependency on Atlantic is great.”

Quixote is now engaging in a series of multi-year grants with some of its core partners in order to make things more efficient for them and for the foundation, Hanisch said. Doing this also give the foundation a midpoint in the next five or six year to look at where it is headed and how it might have to recalibrate its grants.

The foundation has set 2017as an “administrative year,” Hanisch said. During that time it will shut down the operation, close the office, and end its leases and insurance. It has also been advised by its consultant that the closure may not take place exactly as planned: a final grant may have to be made in order to spend down the last dollars, or some unforeseen event may come up.

Price, the moderator, added that the administrative year is also the time the foundation brings in its lawyers and thinks about its legal obligations to keep records and file reports with appropriate agencies.

For The Atlantic Philanthropies, LaMarche said, spending down is not inconsistent with doing new things or being opportunistic within a foundation’s framework of values. “We always leave some money to seize an opportunity to make a lasting impact within our values we hadn’t anticipated,” he said. “At the same time, most of what we’re focused on is a bit of a winnowing process in which we’re look at the programs and initiatives we’ve had over the years, and drilling where there has been success and where more resources and more sustained resources can secure those.”

He cited as an example the foundation’s building of a strong human rights sector in all the countries in which it has a presence. As well, the foundation recently established a capacity building unit to help in this endeavor. “What needs to be said about any foundation is that money is only one of the assets you have; there are also convening power and technical assistance and so on you can offer. We are doing that with organizations in many of the countries in which we work. We’re plotting out how we can bring [these projects] home in a way that we can safely leave by 2016.”

LaMarche noted that The Atlantic Philanthropies’ chief investment officer and his team have the challenge of maximizing return on investments as much as they can while preparing to spend down to zero by the end of 2016. Liquidity is an increasing matter of a concern, so the foundation’s investment strategy is beginning to be more conservative.

He said it is premised on a model of spending down to a certain level to allow for operating expenses, which will decline over the next six or seven years, while holding grant-making budgets steady until the end. “The model has aligned the investment strategy toward the end of predictability and stability so we don’t find ourselves having to make a radical adjustment year to year in what we’re able to give out.”

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