The world of smaller private foundations is in healthy shape, with robust contributions from donors supporting generous giving, according to the latest Foundation Source report on the sector, which was released today.

The world of smaller private foundations is in healthy shape, with robust contributions from donors supporting generous giving, according to the latest Foundation Source report on the sector, which was released today.

The firm’s study of 732 private foundations with under $50 million in assets found that they gave 9.2 per cent more last year than in 2011, donating $215.7 million in the aggregate to charitable causes.

The total number of grants for the year also rose by 8.9 per cent, hitting 17,313.

While the Dow Jones Industrial Average and S&P 500 both made strong gains last year, finishing the year up 7.2 per cent and 11.7 per cent respectively, many decisions about giving took place during the year, when these performances and the economic recovery were far from assured.

Foundation Source believes this indicates that the sector is, to some degree, resistant in the face of economic uncertainty.

“It takes a special kind of person to create a foundation in the first place, so it should be no surprise when those same people step up and give even more when times are uncertain,” said Andrew Schulz, national director of community and legal relations at Foundation Source, and part of the team who compiled the report.

Asset growth

The foundations in the study grew their endowment balances by around 10 per cent over the course of last year, even after paying expenses and spending on grants and charitable work.

They were bolstered by both new contributions and investment performance, as their investments delivered better returns in 2012 than 2011. At the same time, they received $1.06 in new funding for every $1.00 spent. That compares to $0.93 for every $1.00 spent in 2011.

Overall, assets grew from $1.9 billion to $2.1 billion – a turnaround from 2011 when assets fell by 1.6 per cent.

“Our data shows that while strong investment returns were an important piece of the puzzle in 2012, that alone was not enough to account for the significant increases in both grantmaking and assets irrevocably dedicated to charity,” said Schulz.

Indeed, foundations continued to give well above the legal requirement, with the percentage actually rising to 11.7 per cent of endowments (2012: 11.2 per cent), meaning that giving grew faster than asset growth.

While the high giving rate could be taken as evidence that smaller foundations are more concerned with having a current impact than longevity, Schulz said other data suggested they had a “keen interest in building endowments that will last.”

“In the end, I think the motivations, drivers, and concerns or worries of each foundation are as different as the people who inspire and guide them,” he said.

Meanwhile, 2012 saw asset class allocations remain steady. “In fact, allocations to different investment classes were so flat that it is impossible to determine whether the minor changes that we observed represent actual, deliberate movement from one class to another, or are simply the product of normal fluctuations in value of the assets held in each class,” the report said.

Human services, arts and culture and international causes saw increased support from these foundations last year, but Schulz said it was too soon to tell if this was a trend or just a temporary funding shift.

The outlook

Looking ahead, he was optimistic about the role small and mid-tier foundations will play in society in the coming years.

“This is only our second study and the first focused on the extraordinary (and hopefully not to be repeated) four years of global economic crisis. That makes it very difficult to predict what will happen next year based on just this year’s report,” said Schulz.

“Having said that, I’m confident that foundations in our study group will continue to be driven by their missions, their commitment to change, and the needs of their community and not legal minimums or regulatory indications of what’s ‘good enough’. I am also confident that we will have even more foundations in our study group as the number of people who discover how meaningful philanthropy can be continues to grow,” he added.

The survey was based on the actual transactions of 732 foundations, all of which are clients of the firm. Asset bases ranged from below $1 million (384 foundations), to $10-$50 million (55 foundations). They were all at least three years old, to remove the extraordinary behavior of new foundations, the report said.