BY ANDREW SCHULZ
Fairfield-based Foundation Source, which bills itself as the nation’s largest provider of comprehensive services for private foundations, has released its 2014 Annual Report on Private Foundations.
According to the report, 2013 was a strong year for private foundations with less than $50 million in assets, a segment that constitutes 98 percent of all U.S. foundations.
The combination of a recovering stock market and additional contributions by their funders resulted in increased foundation endowments for a second straight year, in spite of charitable distributions that exceeded the 5 percent minimum by almost 50 percent.
Having observed the consistently high rate of giving among these foundations over the past five years, we are no longer surprised by their generosity. Indeed, these foundations have demonstrated time and time again that compliance with the 5 percent minimum distribution requirement is not what drives their philanthropy.
Now in its third year, the report from Foundation Source is significant in that all other foundation research focuses on the “mega foundations,” those that make up just the top 2 percent of all foundations yet hold roughly 70 percent of foundation assets. Extrapolating data from these largest foundations to the entire community can lead to significant misunderstandings about the sector as a whole.
Top findings from the 2014 report include:
• Average foundation endowments grew by 14.1 percent. In aggregate, assets held by the foundations sampled in the report grew from $2.36 billion at the end of 2012 to $2.69 billion by the end of 2013 (a 14.1 percent increase). This was the second straight year of asset growth by the foundations in the study, reflecting a continuing and sustained recovery of the economy in general. Endowment growth was the product of investment returns and new contributions to the foundations by their funders.
• In 2013, the foundations in the report distributed 7.3 percent relative to their average asset balances, an amount well in excess of that which is required by law. More than a third of the foundations (35 percent) distributed 10 percent or more.
Since the recession began in 2008, foundation distributions have consistently exceeded the 5 percent minimum every year. Despite the still sizeable disbursements, aggregate giving in real dollars was slightly down in 2013 from 2012 (2.5 percent), suggesting that some of the foundations in this year’s report used 2013 as a rebuilding year.
• Foundations with assets of less than $10 million awarded nearly as much in general support grants — close to 50 percent — as they awarded in grants for specific projects, contradicting the view that foundations rarely provide general operating support. Interestingly, the larger foundations in the report ($10 million to $50 million), gave much more in specific purpose grants than general support grants by a 3-to-1 ratio, suggesting a preference for project funding as foundations increase in asset size.
Foundation Source’s report is based on the transactions of 714 Foundation Source clients, collected between Jan. 1 and Dec. 31, 2013.
The data represent actual foundation transactions recorded by Foundation Source (not opinion surveys or estimates) as it processed grants and paid expenses on behalf of its U.S. clients and recorded investment information. Because most studies rely on data from foundation tax returns, and the returns aren’t publicly available for at least a year, the reported results are often outdated before they’re even published.
In 2012 and 2013, the Annual Report on Private Foundations included a section about how foundations allocated their assets among investment classes (for example, cash, equity and fixed income). This year, in response to strong interest from donors and financial advisers on this topic, Foundation Source plans to release a separate report looking at aggregated asset investment data in 2013. That report is expected this fall.
Foundation Source’s administrative services, online foundation management tools and philanthropic advisory services provide a complete outsourced solution for private foundations. The result: better-run, more effective foundations and more enjoyable philanthropy. Our clients supply the funds, the vision and the philanthropic goals; we provide everything else.
Today, Foundation Source provides its services nationally to more than 1,100 family, corporate and professionally-staffed foundations of all sizes. We work in partnership with wealth management firms, law firms, accounting firms and directly with individuals and families. The complete report can be downloaded at foundationsource.com.
Andrew Schulz is executive vice president at Foundation Source, headquartered in Fairfield with offices in Boston, Denver, Los Angeles, New York City, Philadelphia, San Francisco, South Florida, Washington, D.C., and Winston-Salem, N.C. He can be reached at Aschulz@foundationsource.com.
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