Grants from private foundations up 9 percent in 2012

It was the best kind of surprise.

From 2008 to 2011, the average private foundation with less than $50 million in assets distributed grants at more than twice the rate required by law.

The findings, presented in a 2012 report by Foundation Source Philanthropic Services Inc. in Fairfield, surprised the report”™s authors, who hadn”™t expected to see such high rates of grant making given the economy. The working hypothesis prior to the unveiling of the results was that while need was great, donors lacked the financial wherewithal to replenish foundations”™ assets at a fast enough rate to support increased giving.

For the firm”™s second annual Report on Private Foundations, released April 29, the key question was whether the rate of grant making by foundations had slowed down in 2012 as the economy righted itself.

It didn”™t.

In 2012, the 732 private foundations that participated in the study cumulatively distributed 11.7 percent of the average value of their assets, up from 11.6 percent for the four-year period spanning 2008 to 2011. Federal law requires that private foundations annually give at least 5 percent of their average investment assets over the course of the year.

“From a policy or political perspective, the assumption has always been that when people put assets in their private foundation, they”™re trying to sock those assets away for the long haul,” said M. King McGlaughon, CEO of Foundation Source. “The assumption has been that the way families do that is they give the minimum amount away each year. … The fact is, that”™s not what they”™re doing.”

The 5 percent bar was set by Congress in 1969, under the assumption that financial markets would average returns of about 6 percent or 7 percent a year. If market returns stuck to the average and foundations gave 5 percent of their assets in a year, the balance would cover the expenses to manage a given foundation.

“The idea was, let”™s find a rule that says (foundations) need to be able to preserve these assets over time ”” because the whole point of this is to have multiple generations using this money for charity ”” so let”™s force them to pay out some amount every year, but let”™s set that amount at a rate that allows them to preserve their core assets for a long period of time,” McGlaughon said.

While the rate of grant making was just slightly higher in 2012 than it averaged out to be over the previous four years, the aggregate value of grants made by the 732 foundations participating in the study increased significantly. The study only examined foundations with less than $50 million in assets.

They gave $215.7 million in 2012, up 9.2 percent from 2011, when they gave a total of $197.5 million. In contrast, the total value of grants made by the participants in last year”™s Foundation Source study increased 4.5 percent from 2008 to 2011.

“This study really shows that these families that are creating and operating private foundations are in fact very philanthropic, that they”™re doing much more than the government requires them to do,” McGlaughon said. “It sheds light on how these private foundations are being managed and what kind of impact they have on the community.”

Foundation Source, which provides administrative services, online foundation management tools and philanthropic advisory services to more than 1,100 foundations nationwide, conducted its first study last year after achieving a client base that it felt was a statistically representative sample of all private foundations in the U.S.

The second study, McGlaughon said, aimed to report on foundations”™ activities in a more stable economic climate.

McGlaughon said foundations seemed to have normalized their investment behavior last year. Additionally, the asset balances increased for foundations in the study group by 10 percent, growing from $1.9 billion at the end of 2011 to $2.1 billion at the end of 2012.

That is after the foundations”™ asset balances shrank about 2 percent from 2008 to 2011, “So 2012 was a very good year in terms of replenishing their assets,” McGlaughon said.

Still, he said, with foundations making grants equal to 11.7 percent of their combined assets in 2012 grant making topped the funds that were returned to foundations through donations.

Of the foundations included in this year”™s study, 384 had assets less of than $1 million, 293 had assets of between $1 million and $10 million, and 55 had assets of between $10 million and $50 million.

The total value of grants made by the first group increased 1.1 percent from 2011 to 2012, the total value of grants made by the second group increased 21.2 percent and the total value of grants made by the third group decreased 1.5 percent.