Trusts and foundations have been traversing troubled waters, but so far managed to stay the course with their grantmaking. Celina Ribeiro investigates how grantmakers have reacted to the downturn and how they are preparing to navigate the future.

A new fundraising director takes up post at a charity, tasked with increasing the income of the organisation. Alright, he says, we’re going for trusts. Let’s hit up our current funders for more cash and pump out 200 funding applications a week. Easy.

This is not a hypothetical situation. It was a suggestion made by a wary fundraiser’s new boss and subsequently posted on an online trust fundraising forum last month - and then very intensely shouted down by other fundraisers.

But while popular opinion may rail against a scattergun approach to trust fundraising, figures released this month by the Directory of Social Change (DSC) suggest that there may be many charities sending out grant applications to anyone they can get contact details for.

Of 984,000 applications for funding received by a sample of 2,500 grantmakers last year, more than a third were ineligible. For some grantmakers the figure is higher, with Lloyds TSB Foundation for England and Wales reporting that around two-thirds of the applications it receives fail to meet the criteria.

Ben Wittenberg, DSC’s director of policy and research, blames both the 200-a-week approach to trust fundraising as well as the opaqueness of some funders (just half of the 400 biggest funders have a website).

Simon George, a consultant at Wootton George and founder of the Institute’s Trust Fundraising Special Interest Group, says that there is evidence that some charities are turning to trusts to make up for shortfalls in other areas of income. “The problem with trusts is that they’re seen as an easy way to raise money. People come in to trust fundraising and think anyone can do it, just bash out some applications, and so it is open to the amateur approach and also to the desperate approach,” he says.

For the Lloyds TSB Foundation for England and Wales, there has been a distinct increase in applications from a broader range of organisations.

“What has happened is that we got more requests, but we haven’t got more eligible requests,” says Linda Kelly, the Foundations’ chief executive. Last year the organisation got around 4,500 applications, compared with around 3,500 in a normal year. Its young offenders programme was also significantly oversubscribed, with around 400 applications for approximately 25 grants.

“What appears to be happening is that organisations that would not normally come to us – because they know we work with small-to-medium sized charities that work with disadvantage – are finding it difficult. So larger charities are coming to us and asking whether we are giving money and almost pushing everybody else down.”

Kelly says that her organisation has also seen a spike in applications from the local branches of federated charities, who tend to be more organised and strategic in their funding applications.

At the same time, she says, it is apparent that some very small organisations are at a something of a loss. “For a lot of smaller charities they don’t have fundraising staff. They had fundraising consultants and in the downturn they haven’t been able to afford them. So they’re not quite sure how to make applications and have tried to put all sorts of things in,” she says.

The Joseph Rowntree Charitable Trust (JRCT) also saw a slight rise in application numbers last year, but reports that the long-term trend has generally been positive in terms of the quality of requests. “Overall we’ve probably seen a significant decrease in the last ten years of inappropriate applications,” says Stephen Pittam, trust secretary at JRCT.

“In 1999 we received around 1,000 applications and we funded around 20 per cent of that. In 2009 we only received 546 applications, but 400 we thought were of a very high standard, though we could only fund 145. The number of applications we have received has reduced significantly, but the reduction has not been in the ones that are of a good quality.”

Staying the course

As charities turn to grantmakers for help, those trusts and foundations are, so far, responding far better than many charities feared at the onset of the recession.

Wittenberg says that many of the larger trusts have told the DSC that the financial downturn has had a “negligible” impact on their grantmaking. The organisation’s Guide to Major Trusts, released last month, found that the top 400 grantmaking trusts in the UK gave away £2.53bn in 2007/2008 (up from £2.3bn in 2005/2006), despite a drop in their combined asset value of around £4bn over the financial year.

A Charity Commission report, titled Firm Foundations, released last August and based on interviews with 19 grantmakers, surmised that funders were intent on taking a “calm, measured approach” to funding during the downturn. Of the 19 organisations, 15 had seen a slight decrease in their income, but the vast majority (14) had not changed the amount they gave away in grants. Three had increased their grantmaking while two cut back. 

Looking beyond 2010, however, grantmakers were less upbeat about their future funding plans. Fewer than half said they would be making no changes, and none would commit to increasing their grant activity. The report warned that while some funders have dipped in to their capital to maintain giving levels, their capacity to do that for an extended period is limited.

“The most consistent message we had coming back from funders, even though maybe their own investments aren’t performing as well as they thought they would, they’re still maintaining their levels of giving because they think it’s important to keep doing that,” says Wittenberg. 

“Grantmaking trusts work on a completely different timeframe to the rest of the universe. They’re planning – if they are planning – ten, 15 years ahead and looking massively long term at their investments.”

JRCT has tried to maintain its levels of giving. At the end of 2008 it decided to increase its giving in 2009 and, at the end of last year, it decided to up it again in 2010.

“Even though our endowment, at the worst time of the crisis, had fallen by 40 per cent we still felt that we could commit ourselves to an increased expenditure,” says JRCT’s Pittam. “In real terms our endowment was well over £200m before the collapse, it went down to £120m and now it’s back to £160m - £165m.

“We have not had to change our spending plan. We would be very hesitant to do that given the fact that those who we support may need our support more now than before.”

Pittam says that the trust’s spending formula allows it to spend despite downturns, and that it was also conscious, before the collapse, that its endowment value was vastly inflated by a boom market. The future however, he says, is not certain.

“It’s a nerve-wracking time. We are very conscious that many people rely on us for their grants. We want to be adventurous, but we don’t want to be irresponsible in any way. So we’re monitoring the financial situation very carefully,” he says.

Meanwhile Lloyds TSB Foundation for England and Wales is in the second year of a three-year strategic plan, meaning no change in the amount it funds. The organisation will be reviewing its plan for 2012 and beyond next year, at which point Kelly expects “there’ll be a lot of water under the bridge”.

“Even if you’re flat in the amount of money you’re giving, a lot of the major funders are like that, there are still people to pay etcetera, so in real terms it probably isn’t as much as people want,” she says.

But while Lloyds has been consistent in delivering multi-year grants and mostly funding core costs, it has been responsive to increased demand for the services of some particular charities. Last year the funder put £2.2m into debt advice charities after they reported increased strain on their resources brought about by the recession.

George warns that any uptick in the economy won’t necessarily mean bigger endowments for grantmaking organisations. “Even if the economy bounced back very strongly there would still be a lag [in grantmakers’ financial health]. If you look at where they’re invested – they’re invested in bonds, cash, stocks and shares and mainly commercial property. Each of these has a different time-frame in terms of recovery,” he says.

“They’re not only seeing their income reduced and likely to stay low for some time, but also I suspect psychologically trusts are feeling very cautious.”

As part of this cautiousness, funders are increasing the scrutiny of the organisations they partner with.

Charities that already have a relationship with a funder, says George, may have a slight advantage as trustees want to reduce risk and also prevent organisations which they have invested in before, from going under.

George suggests that some funders will be narrowing the criteria for funding and removing the issues on the edge of their mission. In particular, he says, charities looking for trusts to help fund capital appeals could face more difficulty.

“Funders are looking very carefully. Where charities are looking to raise a significant amount of money, they will be wanting reassurance about where the rest of the money is coming from, if it is achievable and to be reassured that the appeal is essential at this time,” he says.

Also, the amount of reserves an applicant charity has is being paid increasing attention to by funders eager to whittle down applicants.

JRCT’s Pittam says: “We look very carefully at any organisation’s accounts. You would expect that. We would be sceptical about funding any organisation that’s got very significant reserves.”

Wittenberg expects the issue will become all the more controversial as frugal times continue. “I think we’re going to see some really good, robust and fun conversations about reserves and what’s appropriate over the next few years as the pond gets smaller and there’s more competition for funding. We’re already getting rumblings – not from trusts, but from applicants who are saying ‘how dare so-and-so be competing with us for funding when they’ve got £Xm in the bank?’. It’s going to be a bigger issue for the sector and a bigger question for grantmakers,” he says.