New Report Gives First Reliable Data on Supermajority of Private Foundations and Their Performance Before and Throughout Recession

FAIRFIELD, Conn.--(BUSINESS WIRE)--Foundation Source, the nation's largest provider of comprehensive services for private foundations, today released a report on how private foundations with less than $50 million in assets fared from the beginning of the recession in early 2008 through the end of 2011. Private foundations of this size account for 98% of the approximately 80,000 private foundations in the United States; however, data about this majority is scant as most private foundation research focuses only on the wealthiest grantmaking philanthropies.

The Foundation Source First Annual Report on Private Foundations can be downloaded as a free PDF from the Foundation Source website. It provides information on asset allocations, grantmaking behavior, and endowment growth/decline based on the actual transactions of 519 Foundation Source clients between January 1, 2008 and December 31, 2011.

Top findings include:

1. ASSET ALLOCATION: The Alternative Investments Boom (SEE CHART 1)

Of the four asset classes: cash, equities, fixed income, and alternative investments (e.g., private equity, real estate, commodities), the number of foundations using alternative investments as part of their diversification strategy shifted most significantly during the study period. On January 1, 2008, 38.3% of private foundations used alternative investments; by December 31, 2011, 49.3% had incorporated them into their investment strategies. For private foundations with assets between $1 and $10 million, the jump was even more extreme: 41.6% to 60.1% during the same time span.

2. GRANTMAKING: The Myth of the 5% “Ceiling” (SEE CHART 2)

Even during the worst of the recession, private foundations consistently gave well in excess of the 5% annual distribution required by federal law. Disbursements for grants and charitable expenses averaged 11.6% of assets between 2008 and 2011, and the total value of grants increased 4.5% during the same period. This challenges conventional wisdom, and shows that the so-called “5% payout requirement” acts much less as a ceiling than it does as a floor for private foundation grantmaking.

3. ENDOWMENT GROWTH/DECLINE: (Almost) Keeping Pace with Grants and Expenses (SEE CHART 3). The extent to which donors continually replenish capital and add to foundation endowments is often overlooked. For every dollar that was granted to a nonprofit or paid as a charitable expense, 88 cents was received in newly contributed capital from the foundation’s donors.

According to H. King McGlaughon, Chief Executive Officer of Foundation Source, “What we think we know about foundations is largely based on studies of only the largest of foundations. Our Annual Report on Private Foundations provides a rare snapshot of the fiscal performance of the ‘other 98%’ of private foundations in the United States during the worst economic crisis since the Great Depression. As we analyzed the data, we discovered that some of our long-held assumptions about private foundation grantmaking and other activities need to be revisited.”

Data for the First Annual Report is based on the aggregated transactional activity of 519 Foundation Source clients, collected between January 1, 2008 and December 31, 2011. The data represents actual foundation transactions (not surveys or estimates) recorded by Foundation Source as it processed grants and paid expenses on behalf of its U.S. clients and recorded investment information provided by each foundation’s financial institutions. The data sample may be generalized to the broader foundation community.

To ensure a complete and consistent set of data, the First Annual Report includes only foundations that were active Foundation Source clients for all four years of the study period. Furthermore, because foundation behavior in the first year of existence can be quite different from all other years, the study sample excluded foundations that were less than five years old. Of the 519 foundations tracked in the Report, 55% have less than $1 million in assets, 39% have assets in the range of $1 million to $10 million, and about 6% occupy the top tier of $10 million to $50 million (SEE CHART 4).

The First Annual Report on Private Foundations defines six broad personalities for private foundations, which it refers to as “Foundationalities.” These foundationalities are based on funding and granting behavior as well as information about the individuals involved in the foundation’s management and where each foundation may be in its lifecycle. A dedicated section in the report provides full descriptions of the Foundationalities, followed by overviews of giving, endowment, and asset allocation trends common to the members of each group.

According to Andrew C. Bangser, Chief Financial Officer of Foundation Source, “Private foundations are thought to defy generalities, yet our examination of the data suggests that there are in fact six distinct archetypes—what we’re calling foundationalities—that allow us to categorize and analyze foundation behaviors through a completely new lens. Future iterations of our annual report will examine how time, the economy, and demographic factors might cause foundations to migrate within these six foundationalities.”

About Foundation Source (www.foundationsource.com)

Foundation Source is the nation’s largest provider of comprehensive support services for private foundations, bringing unparalleled knowledge and expertise to clients across the country. The company’s administrative services, online foundation management tools, and philanthropic advisory services provide a total 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 to more than 1,100 family, corporate and professionally staffed foundations, ranging in size from $250,000 to over $500 million. The company provides its services directly to philanthropically focused families and institutions as well as in partnership with the nation’s leading private wealth management firms, law firms, and accounting firms. Foundation Source is headquartered in Fairfield, Connecticut, with offices in Atlanta, Chicago, Dallas, Denver, Los Angeles, New York City, Philadelphia, San Francisco, South Florida, and Washington, D.C.