Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Asset Managers

Smaller Private Foundations Gave Out Much More Than Required in 2014

Your article was successfully shared with the contacts you provided.

Small and midsize private foundations made distributions averaging 7.6% in 2014, well in excess of the 5% U.S. private foundations are required to distribute, Foundation Source reported Thursday.

Foundation Source’s fourth Annual Report on Private Foundations analyzed the investment and grant making behavior of private foundations with assets of less than $50 million.

The report said foundations with less than $1 million averaged distributions of 13.2% last year.

These amounts belie the notion that private foundations stick closely to their 5% minimum distribution requirement each year, Foundation Source said in a statement.

“A common refrain among the general public, and even among philanthropy professionals, is that private foundations only meet the 5% minimum distribution requirement each year,” Foundation Source’s chief executive Robert Chartener said in a statement.

“However, we have collected data on the activities of private foundations with assets below $50 million for several years, and this community, which represents 98% of all U.S. private foundations, has consistently and significantly exceeded their MDR.”

The report’s findings were based on the activities and behaviors of 769 client foundations on whose behalf Foundation Source processed grants, paid expenses and reported investment information. All foundations in the study had assets of less than $50 million and had been in existence for at least three years.

Key Findings

The average 7.6% distribution rate for 2014 was nearly identical to the previous year’s rate of 7.5%. Foundation Source said smaller foundations’ ability to match, and even slightly exceed, their 2013 distribution rate was noteworthy in light of the moderate growth of their assets in 2014.

Smaller foundations experienced an overall average asset growth of 3.7% last year, compared with 20.7% growth in 2013.

Foundations with assets of $10 million to $50 million grew by 4.6% in their asset values in 2014, but the smallest ones with less than $1 million experienced a 2% decline.

Several factors besides market returns contributed to the growth or decline of the foundations’ asset balances in 2014, the report found.

Foundations’ aggregate overall endowment growth came from a combination of donor contributions and investment returns, reduced by grants and overall expenses. Donors contributed $0.75 for every $1 their foundations spent on grants and expenses, and this new funding was critical to the overall increase, the report found.

For the smallest foundations, however, increases of 12.9% from a combination of funding, income, capital gains and unrealized gains did not keep pace with their high rate of grant making activity and expenses.

Their disbursements exceeded 13.5%, so any gains flowed out of the foundation as they were earned. New contributions accounted for only $0.55 for each $1 spent. Collectively, small and midsize foundations gave more in 2014 than in 2013, and those with assets between $10 million and $50 million increased their grant making by 28% over 2013.

The total value of grants made by the foundations last year was $196 million, up from $166 million in 2013. Foundations of all sizes gave more in 2014 than in the previous year: for those with assets of more than $10 million, $21 million more, and for those with less than $1 million, $1 million more.

Foundations with assets of more than $10 million averaged 54 grants each, almost four times that of their smallest counterparts, which gave 13 grants per foundation.

However, the smallest foundations gave more grants in 2014 than in 2013, while the largest foundations gave slightly fewer than in the previous year.

“We are pleased to see that foundation distribution rates have remained consistently strong, year after year,” Foundation Source’s chief philanthropic officer Page Snow said in the statement.

“As policies are currently being proposed that would mandate distribution levels for other charitable vehicles, such as donor-advised funds, there’s been speculation about the possible impact of such requirements. We believe that private foundations may prove useful bellwethers in that the minimum distribution rate seems to be perceived by foundation donors as a floor, rather than a ceiling.”

— Check out New DAF Enables Donors to Fund Individual Researchers on ThinkAdvisor.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.