Grant making by private foundations is projected to decline 4.8 percent to $80 billion this year, according to new estimates from FoundationMark, a research organization.
Assets held by private foundations fell by an estimated 12.7 percent in the first quarter of this year to $976 billion, after hitting $1.1 trillion in 2019.
The asset projections are based on historical data of how foundation assets performed compared with the market over all.
Grant-making projections are based on historical data of how grant making correlates with asset levels and assume that foundations’ assets at the end of the year will be roughly where they are now.
John Seitz, the CEO of FoundationMark, said larger foundations typically use a three-year rolling average of their asset levels to determine their grant distributions, which helps explain why grant making typically declines by a much smaller percentage than assets. “We’re coming off high levels” of assets from 2019, says Seitz, “so the average asset level for foundations is still quite high. Giving tracks asset levels, but with a lag.”
He added, “The impact will still be negative and painful but not as painful as one might have originally thought.”
Seitz, a former Wall Street portfolio manager, says his data shows that it’s a “huge misconception” that foundation payout hews closely to the minimum 5 percent required by law; the average is actually around 8 percent. Seitz said that other studies showing annual foundation payouts averaging closer to 5 percent may produce different results because they track only larger foundations. Seitz says his data covers all foundations of any size.
Seitz says his data shows that foundations maintain a payout ratio of about 8 percent even when their assets decline sharply.
However, Seitz also noted that during the previous recession, foundations didn’t dig deeper into their assets than usual to maintain their overall giving levels as measured in raw dollars, as many grant makers are being pressured to do now.
After the Great Recession of 2008, foundation giving fell 9 percent the following year to $49.2 billion, and then fell another 2.9 percent in 2010 before increasing each of the following nine years.
