David Malone asks whether foundations should exist in perpetuity or go for more immediate impact.

To spend out, or not to spend out is a question that, in the Institute for Philanthropy’s view, too few foundations are asking themselves. This is echoed in the findings of The Power of Now, a new research paper examining spend out foundations in the UK. The paper examines trusts and foundations which have decided to ‘spend out’; that is, to spend all or part of their capital assets within a specified timeframe, instead of maintaining them as permanent endowment. The findings offer a counterpoint to some of the perceived benefits of foundations existing in perpetuity.

Thanks to research carried out in the US we know that about 9 per cent of US foundations currently choose to spend out. Figures from this side of the Atlantic are more modest showing less than 1 per cent of foundations in the UK following suit. We wanted to know more about the perceived benefits of this road-less-travelled, and surveyed 10 per cent of the spend out trusts and foundations publicly operating in the UK. The findings we uncovered were, to say the least, inspiring.

Recently, at the launch of The Power of Now, we hosted a panel discussion on this subject; during which we were treated to spirited speeches by Gara LaMarche, the President and CEO of Atlantic Philanthropies, and Stephen Pittam, trust secretary of the Joseph Rowntree Charitable Trust. As far as models for grantmaking went, it was a respectful clash of the titans: Atlantic is the world’s largest spend out foundation, with a commitment to spend its entire endowment of some $4b by 2020, whilst Joseph Rowntree, though equally passionate about social change, established its commitment to perpetuity in 1939.

LaMarche, whilst acknowledging that “spending down your assets is not for everyone”, explained that “the idea is that the world has many pressing problems, and if we can focus resources on them today, through an investment approach, we will minimise the need for dealing with them more urgently and less thoughtfully as crises later on.” He also noted the “giving while living” philosophy of Atlantic’s founder, the Irish entrepreneur Chuck Feeney, who maintained that wealthy people had a responsibility to use their resources in their own lifetimes for the benefit of society. This thinking was well espoused by one of Atlantic’s recent grants; a gift of $25m to Health Care for America Now, an advocacy organisation in the US which supported President Obama’s successful passage of his highly controversial healthcare Bill. LaMarche commented at the time that, although the gift was, in some ways, “a very big gamble”, Atlantic’s structure allowed it to take such educated risks.

"Our survey’s respondents were all motivated by a sense of urgency; be it their wish to have a greater impact during their founder’s lifetime, or that their chosen cause would be best served by a rapid injection of capital."

 

Pittam acknowledged the key rationale behind a spend out strategy; namely, that the limits on a foundation’s life forced it to focus its approach. However, he argued that this end could be achieved without spending out; and, moreover, that foundations were too important an element of a thriving civil society to be allowed to pass away. “I have a real concern,” he said, “that legacy becomes all important. My view is that this can lead to an unhealthy obsession with evaluation and effectiveness as everyone strains to make the biggest impact. There is a tendency to get caught up in trying to achieve over-optimistic short-term targets and to lose sight of a longerterm vision.” Joseph Rowntree does, however, he admitted, contain an interesting caveat in its charter. It revisits the option to spend out every ten years.

At the Institute for Philanthropy we are evangelical in our support of certain causes – for example, the unrestricted funding of charities. By contrast, the findings in The Power of Now are offered in a preliminary spirit, and the hope that the paper will encourage further debate and wider attention toward spending out as a potential option to the UK’s philanthropists. After all, it takes a blend of approaches to sustain a thriving non-profit sector; not only philanthropists such as Atlantic who are willing to invest large sums for potentially quicker results today, but also those like Joseph Rowntree who are investing money for the long term.

Our survey’s respondents were all motivated by a sense of urgency; be it their wish to have a greater impact during their founder’s lifetime, or that their chosen cause would be best served by a rapid injection of capital. We believe that this discussion is a crucial one, in that it makes foundations reflect on their purpose; and ensures that they are proactive and strategic, rather than passive, in their grant-making.  

David Malone (pictured) is a researcher at the Institute for Philanthropy