The past few months have seen tectonic shifts in our society—the COVID-19 health crisis, the accompanying severe economic downturn and unprecedented levels of unemployment, and sweeping protests against systemic racism that have spilled beyond our borders.
Against this backdrop, foundations are seeking paradigm-shifting ways to strategically meet this moment’s urgency of need. Recent research by Rockefeller Philanthropy Advisors found that thoughtful discussions are happening around giving timeframes in philanthropy, driving intentional, strategic time-horizon choices. While the in-perpetuity foundation model dominates, time-limited giving is on the rise. Further, as the sector balances urgency with a desire to meet long-term needs, funders in both camps are pursuing creative ways to maximize impact.
One high-profile example of this came from five major U.S.-based foundations—led by the example of the Ford Foundation’s Project Wanda—that made the innovative decision to borrow money to increase their giving in response to the urgent societal ramifications of COVID-19. This decision, described by the New York Times as “upending traditional models for philanthropic giving,” is blazing a trail for more traditional foundations to break with convention in order to contribute more to society in a time of great need and promise.
As Inside Philanthropy recently explored, several other foundations, without taking the step of borrowing, are significantly increasing funding, showing a willingness to erode endowments in a very low-interest environment to address the urgency of two pandemics—COVID-19 and systemic racism. Meanwhile, there’s a renewed legislative push for greater philanthropic payout in the moment. All of these developments show how the sector is rising to the challenge, and being pressed to do so, cutting against a historical tendency to contract giving during economic uncertainty.
As part of this search for new and better approaches, many foundations are reflecting on which strategic time horizons—in-perpetuity or time-limited—are best suited for tackling social challenges. Some foundations are fulfilling their sense of urgency by “going all in,” and switching to a time-limited model that accelerates the disbursement of their wealth. Nearly half of the organizations established in the 2010s were founded as time-limited vehicles, dramatically increasing from as far back as the 1980s, when it was closer to 20% of foundations. Others, about 70% of all foundations overall, find that the in-perpetuity approach of spending based on an endowment’s investment returns is best suited to addressing the urgent needs of today, while maintaining crucial long-term presence and support for their communities tomorrow and beyond.
In two recent RPA survey reports on strategic time horizons in philanthropy, we found that urgency and impact are key considerations for both time-limited and in-perpetuity foundations.
In our survey on institutional giving, 70% of time-limited respondents felt their approach allowed for more targeted giving, and 57% said that their organizations worked with greater urgency as a result of their strategic time-horizon choice. An example of this is the Hazen Foundation, which made the decision to spend down its assets to contribute more significantly to the “movement moment” as greater awareness of the issues central to systemic racism entered the national consciousness (discriminatory policing, mass incarceration, privatization of education, among other areas).
Yet, many in-perpetuity foundations are reluctant to “spend big in a crisis,” as they seek to protect their endowments. In our family philanthropy survey report, several respondents noted the in-perpetuity model’s challenge of restricted funding dispersal levels. According to this subset of respondents, the typical annual allocation of 3% to 10% of funds may limit the impact of their initiatives and reduce the ability to tackle significant and current problems.
Our research shows that the majority of in-perpetuity foundations, 63%, stated that the desire to make impact over multiple generations was the reason they maintain this approach. According to one respondent, the in-perpetuity model can create a nimbleness to address “changing needs in the future,” allowing foundations to “take a long view of our grantmaking and accept that complex situations take time and resources to resolve.”
Nonetheless, others are hoping to have it both ways. By pursuing unorthodox finance moves, the Ford Foundation and others are betting that their use of long-term bonds will prove that it’s possible for in-perpetuity foundations to both keep their endowments intact to serve future generations, and to spend big when the moment calls for it.
The emerging conversations around new ways of operating show that the world of foundations is a rich tapestry filled with a diversity of missions and approaches. One unifying thread, however, is the strategic and thoughtful ways in which foundations are seeking to maximize impact as they face the urgency of a historic moment.
Many foundations are looking afresh at how they leverage their endowments. From the growing popularity of impact investing and funding systems change, to reconsidering their strategic time horizons, foundations are increasingly reflecting on how to use all assets and resources to address needs more effectively and achieve deeper transformative change. The groundbreaking decision by the Ford Foundation and its allies, in addition to smaller funders dramatically increasing their payout rates, will undoubtedly lead the way for more to come.
Kalyah Ford is Senior Researcher at Rockefeller Philanthropy Advisors.