Billion-Dollar Growth at Big Funds

Huge cash infusions, market gains send assets soaring, survey finds

The assets of 135 of the nation’s wealthiest private foundations grew by $24.9-billion last year,

to $180.6-billion, a new Chronicle survey has found.

While the bull market helped pull up the earnings of many big grant makers, it was only partially responsible for the surge in endowment values. Nearly $11-billion of the rise can be attributed to gifts made by Bill and Melinda Gates to their foundation.

In 1999, the Microsoft founder and his wife made several multibillion-dollar donations, and in January they added $5-billion. Their foundation is now worth $21.8-billion.

Over all, the Chronicle survey found that the median increase in asset value in 1999 over 1998 figures was 7 percent, meaning that half achieved larger gains and half smaller ones. That performance was better than the previous year, when the survey found a 5-percent-median rise, but it was still relatively lackluster considering the strong market.

The performance reflects in part a drop in the stock value of companies in which several large foundations are heavily invested. A decrease in Coca-Cola’s share price, for example, caused total assets to drop more than 15 percent at both the Robert W. Woodruff and the Joseph B. Whitehead Foundations, in Atlanta, while a drop in Eli Lilly and Company’s share price saw the Lilly Endowment’s assets plunge by nearly 30 percent.

What’s more, many foundations remain heavily invested in bonds, which for the most part did poorly last year. The Lehman Brothers Aggregate Bond Index showed a total return of minus 0.8 percent in 1999, for example, compared with an increase of nearly 24 percent in the Wilshire 5000, a broad index of U.S. equities.

Nonetheless, foundation assets rose sufficiently last year to cause many foundations to increase the amount they plan to give away this year. Of the 146 foundations that provided either figures or estimates for their grant budgets this year, slightly more than half expect their giving to increase, and 55 expected their giving to stay the same. Only 16 foundations said they expected their grant-making budgets to decrease.

The projections for 2000 come after a year in which many foundations significantly increased the sums they distributed to charities. The median increase in the amount of money awarded last year was 13 percent at the 140 foundations that reported figures for 1998 and 1999 to The Chronicle. Those foundations awarded $9.6-billion in grants last year.

One big reason for the rise in giving: Foundations must give away at least 5 percent of their assets, on average, every year under a federal law.

The Chronicle‘s survey was based on data provided by 146 of the nation’s 217 largest foundations.

While the meteoric increase in the size of the Bill & Melinda Gates Foundation dwarfed many of the other gains in foundation size, four foundations grew by $1-billion or more — largely as the result of the strong stock market.

* The David and Lucile Packard Foundation, in Los Altos, Calif., grew by $3.4-billion, to $13-billion. The foundation benefited from a sharp rise in the value of Hewlett-Packard Company stock, which is a large part of the foundation’s portfolio. Its growth came despite the foundation’s having transferred 11 percent of its assets — worth some $1.6-billion — to endow the Packard Humanities Institute.

* The Ford Foundation, in New York, grew by $2.3-billion, or 24 percent, to $11.9-billion, because of strong investment returns.

* The assets of the Annie E. Casey Foundation soared by nearly $2-billion, to $3.6-billion, after United Parcel Service, the company established by its founder, went public in November. The Baltimore foundation, established by Jim Casey, owns 41.6 million shares of UPS stock, which make up 80 percent of its assets.

* The California Endowment, in Woodland Hills, grew by $1.4-billion, or 57 percent, to $3.7-billion. Not all of the growth was from investment earnings. The endowment, one of two health-care foundations created when Blue Cross of California converted to a for-profit company in 1996, received $850-million last year as part of the conversion process.

E. Lewis Reid, president of the California Endowment, says the growth in his foundation’s size — and that of many other philanthropies — could be a mixed blessing. While the extra money allows foundations to undertake more-ambitious programs than in any other era in the history of American philanthropy, it could also attract new scrutiny — especially from legislators and government regulators.

“The power that goes along with the enormous amount of funds in the philanthropic sector will invite political reactions,” says Mr. Reid. “When there’s that much money in play, a lot of people are going to want to say how it gets used.”

He adds: “The sheer size of this growth in philanthropy is going to raise issues that could jeopardize its independence. It’s something that organized philanthropy should be thinking about.”

Rebecca Rimel, president of the $4.8-billion Pew Charitable Trusts, in Philadelphia, says that as foundations grow bigger and bigger, “one does have to pause to make sure that we fulfill the commitments we’re making.” She adds: “Credibility has got to be the stock in trade of the sector.”

The strong stock-market performance of foundation portfolios has led to intensified efforts by many in philanthropy to encourage grant makers to give away more. The National Network of Grantmakers and the National Committee on Responsive Philanthropy have been urging foundations to increase their giving by at least one percentage point.

Several foundations in The Chronicle’s survey say that the boom in their assets has led them to consider an increase in the share of funds they give each year.

Baptist Community Ministries, in New Orleans, which currently awards 5 percent of its $225-million endowment, is considering increasing the award to 6 or 7 percent. The organization, which became a private foundation in 1996 after it sold two hospitals, has asked its financial consultants to determine what the effects would be of increasing the share given away each year.

“It’s been raised to our attention by a number of different community foundations and advocacy groups, so it should be examined,” says Byron Harrell, president of Baptist Communities Ministries, which has grown nearly 22 percent in the past year. “If your main goal is only to protect your purchasing power under inflation, then actually in the last few years our payout could have been higher.”

The California HealthCare Foundation, in Oakland, the other philanthropy created by the for-profit conversion of California Blue Cross, is considering increasing its grants payout from 5 percent to 6 percent. The foundation saw its assets plummet by 46 percent last year, from $2.1-billion to $1.1-billion. The loss was expected — it came as part of the complicated conversion agreement that spawned the two grant-making entities.

Mark Smith, president of California HealthCare, says that the issue of increasing the payout rate will be discussed at a forthcoming board retreat. “Our debate has less to do with whether it’s right for everybody than it does with whether it’s right for us,” he says.

Dr. Smith says the staff of the foundation, created in 1996, has grown in both size and sophistication and is now at a point where he believes that it would be able to do an effective job of making more grants.

What’s more, he says, because the foundation specializes in giving to organizations that are confronting a fast-changing health-care system, including those that work to preserve the confidentiality of patient health information on the Internet, the time is right to consider giving away more. “Those things are changing faster than anything else in the world,” he says.

While many foundations created by a single donor or family want to operate in perpetuity — and are therefore wary of distributing so much that they would eventually have to shut down — Dr. Smith doesn’t worry about that issue.

“We don’t have any individual legacy to protect,” he says. “It’s not like we have ‘Mr. Foundation’s’ name to protect for 300 years.”

Healthy growth in asset size has not led many foundations to undertake new directions in their grant making. It has, however, prompted many to increase the size of the awards they make to particular groups or to concentrate resources on a few high-priority projects.

The Gates Foundation has been leading the way with grants that by themselves are bigger than the assets of many of the nation’s 50,000 foundations. In September, the foundation dedicated $1-billion to the Gates Millennium Scholars, a 20-year program to give scholarships to minority students in severe financial need.

In November, the foundation announced that it would give $750-million over five years to the Global Fund for Children’s Vaccines to help purchase vaccines and improve immunization services in the poorest countries in the world.

The foundation, which plans to award a total of $1-billion in 2000, expects to give highest priority to continued efforts to make immunizations readily available. Even though the Gates fund has the ability to continue to make large grants to protect poor people from disease, Patty Stonesifer, co-chair of the Gates Foundation, says no single organization has the resources to “make a dent in the issue unless there is some collaboration going on.” As a result, she says, the point of many of the big Gates grants is “to increase collaboration.”

In addition to Gates, several other foundations that saw their endowments grow significantly made larger-than-usual grants last year. Among them:

* The $1.6-billion W. M. Keck Foundation, in Los Angeles, gave $110-million to the University of Southern California’s medical school. Most of the money will be spent on a neurogenetics program that will focus on degenerative brain diseases, including Alzheimer’s and Parkinson’s, and psychiatric problems such as manic depression, schizophrenia, and addiction.

* The Robert Wood Johnson Foundation, in Princeton, N.J., gave $50-million, primarily in general operating support, to the National Center for Tobacco-Free Kids. The $8.3-billion foundation had previously given the center $19.5-million since its creation in 1996.

* The $11.2-billion Lilly Endowment, in Indianapolis, gave $50-million to the Hispanic Scholarship Fund. The grant was the single largest made to a group outside of Indiana in Lilly’s 63-year history. Of that amount, Lilly said it would put $5-million into the organization’s endowment, provided that the charity raises enough funds to match that amount. The scholarship fund plans to use the rest of the grant to expand its scholarship programs.

Sara Martinez Tucker, president of the Hispanic Scholarship Fund, says that the grant from Lilly has helped the charity to become financially stable. “For years in the Latino community we’ve only been able to grow incrementally, while the Latino population has grown explosively,” she says. “We started from scratch, awarding everything we had, and couldn’t tell the students we’ll be here for you year after year. Now I can.”

Six additional foundations reported that their single largest grants were worth more than $20-million, and another seven foundations reported single grants of more than $10-million. And that trend is likely to continue in 2000.

At the $4.5-billion John D. and Catherine T. MacArthur Foundation, in Chicago, president Jonathan Fanton plans to make larger-than-usual grants. He will also encourage the foundation to put more money into the causes the foundation already supports.

“As our assets grow, we will make larger grants and more grants in existing areas,” says Mr. Fanton, who took over the foundation’s top job in September. “We will be more effective if we focus our resources on a limited number of program areas with specific goals that we’re trying to achieve and deepen the investments.”

One example: MacArthur is deepening its commitment in Africa, pouring in more dollars and focusing on parts of the continent where it had not previously made awards. The new grants program will support projects in Nigeria and Tanzania.

Many other foundations are looking for ways to limit the number of causes they support — all with the goal of doing a better job of making grants in a few specific areas.

The Packard Foundation, for instance, has taken several steps intended to allow it to concentrate on the key parts of its mission — population control and conservation — awarding $100-million in grants in each area, up from $75-million apiece last year.

Packard has given up one grant program: It stopped its support of humanities programs after it provided $1.6-billion to endow the Packard Humanities Institute last year. The institute was created in 1987 by David Woodley Packard, son of David and Lucile Packard, and runs programs that promote history, literature, and music. Foundation leaders said it made more sense to let an organization with humanities expertise make the grants, instead of adding more humanities specialists to the Packard staff.

Packard also consolidated two grant-making programs in an attempt to produce better results. Last month, under the leadership of Richard T. Schlosberg III, who took over as president in May, the foundation merged a program that encourages new donors to give to charity with its program that seeks to strengthen the management of non-profit organizations.

The newly consolidated program will make $35-million in grants this year, more than the $12-million and $10-million, respectively, that those programs gave away in 1999. “In looking at our grant making in the two areas,” says Carol Larson, Packard’s vice president and director of foundation programs, “the staff work was similar, and by bringing them together they can be more coordinated internally and do more externally.”

The James Irvine Foundation, in San Francisco, eliminated its grants to health projects last year after studying how many new foundations with health care as their mission had been started in California. Most of the money it was spending on health will now be given to the other causes the foundation has long supported.

In recent years, as a result of the shifting ownership of hospitals, health-care systems, and health-insurance plans, the state has seen the creation of more than a dozen health-care foundations, with combined assets exceeding $5-billion.

“Not only was it an issue of increased dollars,” says James E. Canales, vice president of the Irvine Foundation, “but also looking at our grantee population and seeing that there was a fair amount of overlap in support they were getting from us and from others.”

For example, he says, a decade ago, Irvine contributed $4-million to $5-million out of the $20-million to $30-million that foundations gave to California health charities. Since then, the amount that Irvine has put into health has remained the same, but the total amount that foundations have given to California health groups has risen to about $300-million.

For funds that faced steep declines in the value of their endowments, dropping grant-making programs was a fiscal necessity.

At the J.A. and Kathryn Albertson Foundation, in Boise, Idaho, for example, giving will be less in 2000 than the $120-million awarded in 1999. Albertson saw the biggest percentage loss in endowment value last year: It dropped 31 percent, to $815-million. The foundation’s stumble was caused by the drop in value of its shares in the Albertson supermarket chain, created by the fund’s founders. The stock plunged after the grocery retailer purchased American Stores for $8.3-billion last year.

The financial woes caused the foundation to suspend or delay several programs this year as it continues to trim its grant making. For example, in 1999 it started a program called “Teaching with Technology,” through which 850 schoolteachers completed week-long training sessions on integrating technology into the curriculum. The foundation will continue to pay for a mentor program to help teachers who already have received training, but no new training sessions will be held.

The W.K. Kellogg Foundation, in Battle Creek, Mich., is rebounding from a sharp drop in the value of its assets in 1998 caused by the decline in the stock value of shares it owns in the Kellogg cereal company. The foundation ended its fiscal year in August 1999 with $6.4-billion, a 15-percent increase. However, in December the assets had dipped again to $5.7-billion, and foundation officials say that giving is likely to decrease this year.

Since the downturn began, the foundation has been adjusting its administrative expenses to keep them at about 12 or 13 percent of the foundation’s annual spending. The foundation trimmed the size of its staff and tries to use outside services whenever possible.

The asset drop has also caused the foundation to consolidate many of its programs. For instance, the foundation previously had worked throughout Latin America to fight poverty, help children, and develop local economies. Now, Kellogg has allocated $45-million over five years and focuses its work geographically in three areas: the high Andes, including parts of Bolivia, Peru, Ecuador, Chile, and Argentina; northeastern Brazil; and southern Mexico, Central America, and some Caribbean countries.

“We recognize that the resources will be strained for a while,” says William C. Richardson, Kellogg’s president. But he says the foundation has learned how to distribute money wisely in those countries. “Because of what we’ve learned in the past 10 years, we think the impact will be very substantial.”

Domenica Marchetti contributed to this article.