Foundation Assets Recover

Many grant makers don’t plan to increase awards, despite gains

Buoyed by stock-market gains, assets at most of the nation’s largest private foundations rose last year,

a new Chronicle survey has found. But despite the growth in their investment portfolios, most charitable funds plan to freeze their grant making at 2003 levels, saying economic gains remain too small and the market too volatile to make new commitments.

For the 140 grant makers that reported data for the 2002 and 2003 fiscal years, foundation assets grew a median 9 percent, meaning half achieved gains of 9 percent or more and half did less well. Since 2000, assets for most foundations had been falling; in 2002, for example, median assets fell 9 percent.

While 46 of the 141 funds that reported their giving plans for 2004 expect to increase their grant making, most foundations — 73 — said they are keeping their grant budgets the same as in 2003. Foundation officials point out that while the stock market grew significantly in 2003 — the Standard & Poor’s 500 Index, a catalog of stock prices of 500 publicly traded companies, rose 26 percent — many foundations’ endowments are still worth less than they were a few years ago.

At the California Wellness Foundation, in Woodland Hills, for example, assets rose 13 percent, to $966-million last year, but they remain below the high-water mark of $1.1-billion in 2001. “The market had a good comeback last year and so did we,” says Gary L. Yates, president of the foundation. But “just because the assets are up doesn’t mean we’ll do anything different.”

The survey also found:

• Among 125 charitable funds, the median value of grants approved in 2003 fell 7 percent.
• Of the 141 foundations that provided The Chronicle with 2003 data, assets totaled more than $166-billion. Those grant makers represent a large percentage of the foundation world’s wealth. In 2001, the most recent year for which data are available, total assets for the nation’s 62,000 foundations equaled an estimated $476-billion.
• At 9 of the 10 wealthiest foundations, assets grew a total of more than $10-billion. Combined assets for the 10 grant makers equaled $87-billion last year. In 2000, the 10 wealthiest foundations had almost $92-billion.

The Robert Wood Johnson Foundation, in Princeton, N.J., was the only fund among the top 10 whose assets dropped. It lost more than $200-million, almost 3 percent of its endowment, because of a decline in Johnson & Johnson stock, says David J. Morse, the foundation’s spokesman. The grant maker, which primarily supports programs that deal with health issues, holds about half its assets in the New Jersey pharmaceutical company’s stock, he says.

Mr. Morse says the dip in the fund’s portfolio will slow the growth of several new grant programs, including one to treat and prevent childhood obesity in the United States. “We may not ramp up as quickly as we had liked if our assets had stayed at the same value,” he says.

Biggest Gain

Among the rest of the 10 largest grant makers, the assets of the Gordon E. and Betty I. Moore Foundation, in San Francisco, increased the most — by more than $4-billion — because of the final installment from a charitable remainder trust the Moores established when they created the organization in 2000. The payment catapulted the fund into eighth place on the Chronicle’s list of the largest foundations. Last year, the foundation, which supports environmental, higher-education, and science causes, did not appear on the list.

Topping the survey of the nation’s wealthiest grant makers for the fifth consecutive year is the Bill & Melinda Gates Foundation, in Seattle, with more than $26-billion in assets. Last year, the foundation’s assets rose 11 percent because of growth in its investments. The fund also made the single largest grant payment by any foundation, giving $350-million to the United Negro College Fund, in Fairfax, Va. The money is part of a $1-billion commitment the fund made in 1999 to the nonprofit group to provide 20,000 college scholarships to minority students. So far, the organization has paid $617-million of its pledge.

Already this year, the Gates Foundation has given $82.9-million to the Aeras Global TB Vaccine Foundation, in Bethesda, Md., to support the development of vaccines to prevent tuberculosis.

Sylvia M. Mathews, the Gates Foundation’s chief operating officer, says the fund is likely to make even bigger commitments this year, but she declined to say in which grant-making program — global health or U.S. education — such an award might be made.

Increased Giving

While Gates and most other foundations expect their grant budgets to remain the same this year as last, several grant makers are increasing their commitments.

The Rasmuson Foundation, in Anchorage, which appears on the survey for the first time, plans to increase its grant making to $20-million in 2004, as it continues to receive an infusion of cash from the estate of its founder, Elmer Rasmuson, an Alaska bank executive who died in 2000 at 91. Since 1999, the foundation’s assets have ballooned from $8.6-million to $425-million at the end of last year, and are expected to grow to about $500-million by next year. The foundation, which opened in 1955, gives all of its money to charities in Alaska.

The George Gund Foundation, in Cleveland, also plans to increase its grant budget — to about $22-million — as its assets had grown 14 percent, to $454-million, by the end of 2003.

“Our portfolio has been rebounding. We have more money now than we did a year ago,” says David T. Abbott, Gund’s executive director. As part of its new commitments, the grant maker has promised $3-million over the next three years to the newly established Fund for Our Economic Future — an effort to spur economic development in northern Ohio. So far 28 private, community, and corporate foundations have donated $22-million to the fund, with the Cleveland Foundation, a community foundation, providing $10-million.

Proceeding Slowly

While Gund and a few other foundations are capitalizing on their investment gains, some grant makers are taking a wait-and-see approach to the stock market. If investments hold steady, they plan to start new programs by the end of 2004 or next year.

The Ford Foundation, in New York, for example, may establish an effort to fight anti-Semitism worldwide, says Alex Wilde, the organization’s spokesman. Mr. Wilde says the desire to invest in such a program was prompted in part by criticism the fund received from members of Congress and others over Ford’s support of Palestinian organizations accused of promoting anti-Jewish sentiment (The Chronicle, November 27, 2003). Mr. Wilde says Ford would make a “significant” contribution to the new program, if approved, but declines to say how much it is considering.

The William and Flora Hewlett Foundation, in Menlo Park, Calif., is also considering new grant-making programs and will wait until later this year to approve them. The foundation is considering a program to promote global security and international development, and an effort to aid poor families in the San Francisco Bay Area, says Paul Brest, the foundation’s president.

In 2002, Hewlett canceled its plan to start a $20-million national program to help poor minority youngsters because of a rapid fall in its investments. The Bay Area program is in part a way for the foundation to return to that effort, but on a smaller scale, both in geography and dollar amount, says Mr. Brest. “We’re going to start it in a more limited way. My hope is that we can come back to that youth program,” he says.

Staffing Costs

Caution on the part of foundation officials extends beyond their grant making to their staffing requirements.

“Having watched the [stock market] roller-coaster ride, we won’t increase staff or administrative costs any time soon, because what went up we now know can come down, and come down rather rapidly,” says Mr. Yates of the California Wellness Foundation. The fund terminated 13 people last year, and it has no plans to rehire this year.

Another lesson Mr. Yates has learned from the economic volatility: It is better to make fewer long-term grants. His fund plans to limit the number of multiyear commitments and instead provide organizations with grants in one lump payment. The California Wellness Foundation plans to reduce its grant making by $3-million this year after fulfilling in 2003 several of the multiyear pledges it had approved in years past.

Like the California fund, several foundations report declines or freezes in their grant making because of outstanding commitments made before the economic downturn. These charitable funds say that to honor pledges, they have maintained grant budgets that did not reflect the precipitous declines in their investments.

The Teagle Foundation, which did not provide asset figures for the survey, for example, expects this year to make payments only on grants it approved during the past several years. Teagle’s board members and its president, Robert W. Connor, plan to review the foundation’s programs in coming months before making a new round of grants.

“We rode the market up and made a lot of commitments while thinking we’d still have that amount of capital,” says Victoria L. Miller, a program assistant for the New York foundation.

While the moratorium on new grants continues at some foundations, at least one, the Sid W. Richardson Foundation, in Fort Worth, welcomes new grant requests. The fund plans to start reviewing new requests after last year restricting its support to prior commitments.

The recent economic uncertainty has also prompted Richardson to place more emphasis on helping its grant recipients diversify their sources of revenue by starting stores, small businesses, or other efforts to produce income, says its executive director, Valleau Wilkie Jr.

For example, the foundation has helped the local affiliate of Habitat for Humanity set up an enterprise called a ReStore, which sells used and surplus building materials for a fraction of retail prices. The proceeds support Habitat projects.

Loans to Charities

Another result of the economic downturn is that more foundations are using so-called program-related investments, which typically are loans to charities for projects related to a grant maker’s charitable programs. Twenty grant makers reported providing such loans and equity investments for charitable purposes last year, compared with 14 in 2002.

The F.B. Heron Foundation, in New York, which provides advice to grant makers on how to make program-related investments, often called PRIs, had twice as many foundations — 13 — seek its help in 2003 than in the previous year, says Luther M. Ragin, the group’s chief financial officer.

“When the market was just awful and returns for virtually all foundations were negative three years running, a number of people on the finance side began to recognize that well-constructed PRIs didn’t look all that unattractive compared to the more traditional opportunities,” Mr. Ragin says.

But even as the market has improved, foundations are continuing to offer loans and other such financing tools. Chris DeCardy, a spokesman for the David and Lucile Packard Foundation, in Los Altos, Calif., says his organization plans to make more charitable loans for capital projects and land conservation in the future. “It’s an area we’ll spend a lot of energy on, figuring out how to do these types of loans,” he says. Last year Packard offered approximately $14-million in program-related investments, down from $36.8-million in 2002.

Growing Scrutiny

Beyond changes forced by the economy, some foundations also have altered their operations due to the scrutiny from Congress, state attorneys general, and the news media on alleged abuses, such as questionable salaries and perks for officials.

Hewlett, Ford, and other grant makers have begun to adopt parts of a federal law known as the Sarbanes-Oxley Act, which applies to the governance of commercial companies, but that has begun to influence nonprofit groups. The Rasmuson Foundation, for example, reconsidered compensation for board members, a practice the Sarbanes-Oxley Act discourages at for-profit companies.

“We had started to discuss board compensation, anticipating that younger family members would come onto the board,” says Diane Kaplan, the group’s president. “But with everything going on, we decided to put the brakes on any discussion of board compensation.”

Even so, Ms. Kaplan defended her foundation’s spending on administrative costs, another area of concern to government regulators and legislators. Some members of the U.S. House of Representatives have proposed reducing the amount of administrative costs, such as travel expenses, that foundations could include in calculating the federally required amount they must distribute to charities each year. But Rasmuson officials conduct site visits for every grant of $25,000 or more, Ms. Kaplan says. She says she believes such visits are crucial to ensuring that grant money is put to good use. And in a huge state like Alaska, travel costs mount quickly. “It costs $1,000 to travel from Anchorage to Barrow,” she says.

While foundation officials express concern about the public scrutiny of philanthropy, most are breathing a sigh of relief now that the economy appears to be growing again. They remain cautious, but most see signs of hope ahead.

“In a post-September 11 environment, we became far more cautious in expanding in new grant areas,” says Patrick J. Modugno, chief financial officer for the Conrad N. Hilton Foundation, in Reno, Nev., which plans to increase the grants it approves this year. But “it appears as if the market will continue to provide some pretty decent gains in the future.”

If investment portfolios do remain prosperous, grant dollars could grow, too. “We’ll be headed toward increasing our grant making to near where we were three years ago,”says Mr. Wilkie of the Sid W.Richardson Foundation. “That’s a happy prospect.”

Leah Kerkman and Stanley W. Krauze contributed to this article.