4: Leveraging Endowed Assets

Philanthropic funders are already rising to the challenge of helping their grantees in tackling the crisis. According to rough estimates by ACF (as of end of March 2020), around £500 million in funding has been dedicated to tackle the crisis.

Much of this additional funding comes from drawing down of endowments (which already dropped 10-20% in value) and capital. And even when funders are ‘just’ maintaining pre-crisis levels of spending, this means that they are drawing down endowments already in real terms.

At the same time arguments can be made that funders need to step up more in order to save parts of the sector from simply disappearing. Many will have to strike a balance between ramping up the emergency response now and being in a position to play a significant role in the rebuilding process.

Government responded to the needs of the sector with their £750m package, but huge challenges still remain given the scale of the current crisis, so it is highly likely that further government support will be needed. Any further philanthropic response will need to be in addition to this.

Many funders are responding to the crisis already, but there could be room for them to readjust the balance struck between funding now and planning future responses or engaging with more creative ways to move funding into the sector now.

Regulators may also have a crucial role: The Charity Commission could clarify guidance on spend-down possibilities, and, as mentioned already, Government could coordinate a pledge from the foundation sector, drawing in other stakeholders (individual major donors and businesses) and providing match-funding.

Key Ideas

Spend-down a proportion of endowed assets

Foundations and charitable trusts could be encouraged or incentivised to spend-down a proportion of endowed assets (e.g. 10-15%).

This could be a temporary measure during the crisis (i.e. not a longer-term payout requirement) and/or linked to specific activities and causes linked to the crisis (health, social and elderly care etc.).

There are arguments to be made that current spending levels are comparably low (i.e. what is the benchmark for the starting point to be used here?).

Future Foundations UK has estimated that the top 300 foundations and trusts in the UK spent about 5% of their assets in 2016/17 (£3.3bn in grant-making out of £65bn in assets), and argue that funders should commit an additional 5% of grant funding to invest into civil society infrastructure: this enables much needed interim people-to-people support and maintenance of community-led infrastructure.
stem cell cancer research
In April 2020 Cancer Reserach UK made the difficult decision to cut up to 10% of funding to existing grants and institutes.

Rebuilding in the future

Another question is to what extent funders should hold back for now (or maintain funding levels) retain funding for the efforts to rebuild the sector post-pandemic – or are temporary small increases just delaying an adequate response?

Maya Winkelstein, CEO of the Open Road Alliance argues that foundations should spend a higher percentage of their endowments now. There will be knock-on effects from the current crisis that will hit the non-profit sector in a second wave in the near future. Providing emergency funding, even consecutive rounds, may be just ‘kicking the can down the road’. She argues that funders who are not comfortable with increasing their grant-making could look into other options (e.g. providing interest-free loans, knowing that some of the money will at least be paid back).

Financial recovery

A third question is related to the ability of endowments to recover. Many trusts and foundations are seeing an immediate drop, but a lot of them had also seen long-term gains post-2008 which makes the current impact less severe than it could have been. Candid has provided strong evidence on how US funders reacted to the 2008 global financial crisis and recovered from it. Their assets grew by 58% between 2010 and 2018, and overall giving grew from $46 billion in 2010 to more than $80 billion in 2018. According to Candid, this represents a 76% increase, double the GDP growth rate (37%) in the same time period.  While this current crisis is different in nature, this might give some indication that endowments and assets have prospects to recover post-crisis.

Further idea

Endowments as collateral

Foundations could use a percentage of their endowments as collateral to provide bridge loans to grantees where appropriate, which could be repaid or credited against future grants. Given historic lows in interest rates this could be an appealing use of endowed resources.
    

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