Charitable Foundations See Endowments Drop

SEATTLE, June 25, 2009, Associated Press — U.S. foundations saw their investments drop by an average of 26 percent in 2008 amid the economic downturn and stock market collapse, but that hasn't slowed their charitable giving, a new survey has found.

Even the world's largest charitable foundation, Seattle's Bill & Melinda Gates Foundation, reported a 20 percent drop in its endowment in 2008. But it still managed to give away $3.5 billion, up from $3.2 billion in 2007.

The Gates Foundation wasn't part of the survey, but its endowment's performance has been repeated across the country.

"There's no group here in the nonprofit sector that was able to avoid these very steep declines," said William F. Jarvis, managing director of the Commonfund Institute of Wilton, Conn., which provides investment advice to nonprofits and does an annual study of foundations.

The results of the Commonfund study, released Thursday, show the 290 private and community foundations surveyed gave away an average of 5.8 percent of their assets in 2008, compared with 5.5 percent in 2007.

Nearly half the foundations reported increasing their dollar spending by an average of 20.4 percent in 2008, while 31 percent said they decreased spending by nearly a third.

The federal government requires charitable foundations to pay out 5 percent of their assets each year. Because assets are falling, many foundations announced at the end of last year they would cut their donations to charitable causes in 2009.

Things seem to be looking up this year for some groups. After dropping 18 percent in 2008, The Broad Foundations of Los Angeles have already seen the endowments improve 10 percent in the first five months of 2009.

The endowments of the group of foundations, which focus on education reform, scientific and medical research and the arts, dropped from a total of $2.5 billion in January 2008, to $2.1 billion in January 2009, said spokeswoman Karen Denne.

She said they're optimistic that the markets will continue to improve, but it likely will take several years for the endowments to recover what they lost in 2008.

"We were fortunate to not have the losses that so many other foundations had," Denne said.

The Gates Foundation, started by Microsoft Corp. co-founder Bill Gates and his wife in 1994, has been giving out more money each year since its inception. It announced that while it wouldn't reduce distributions in 2009, growth of the distributions would slow.

The foundations surveyed in the Commonfund Study reported average investment returns of 9.9 percent in 2007.

Jarvis said some foundations are selling assets and opening lines of credit with financial institutions to make sure they can meet their commitments in 2009.

But foundation endowment managers aren't ready to give up on the stock market, he said.

"Our chief investment officer is fond of saying, if you want to have no risk, you also have to accept that you'll get no return," Jarvis said.