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There’s been a lot of speculation in recent months about the effect the recession will have on trust and foundation giving, both now and in the near future. As many trusts and foundations distribute money earned on their invested capital, it is thought the negative impact will take some time to filter through. The extent to which trust income is reduced is very much a case of simple maths and is largely dependent on how and where their money was or is still invested. Even foundations themselves have been unsure of the full impact of the downturn on their investments, revealing only that they expected the full impact to hit between 2010 and 2011.
The good news is that we can slowly begin to shed some light on the potential impact of trust funding thanks to a couple of new pieces of research. Indications are that the amount of money distributed by trusts won’t be as badly affected as some other areas of fundraising. Many trusts, like traditional charities, have a store of reserves (an endowment) which allows them to weather this type of economic storm and it would seem that some trusts are prepared to use it to maintain grantmaking levels.
A new report by the Charity Commission called Firm Foundations provides a snapshot of the experiences of trusts and foundations as they face the future. Many of them have more robust finances than other types of charities and together with the income accrued from investments in the ‘boom times’, has served them particularly well. This has been corroborated by some research into the financial fortunes of a selection of 50 charitable trusts by Fundraising Training Ltd. They too found that trusts’ typically conservative approach to investment has meant that many still look healthy even after the downturn.
However, what both reports show is that there is no generic answer to the question of what will happen to trust grantmaking. It is dependent on many variables including things like the size of endowment and the scale of investment etc. but what is clear is that trusts are using this period to reassess their grantmaking, without necessarily reducing funding levels. Foundations are increasing their scrutiny of how effectively their money is used by recipient charities and appear more alert to the risks involved, with the vast majority of those interviewed revealing they now undertake closer scrutiny of the financial viability of organisations applying for funds – you have been warned!
This is perhaps not the picture of doom and gloom many have painted in recent times and it is good news for the thousands of charities who rely heavily on trusts and foundations for funding. But like with most things (and I don’t mean to be a liberal fence-sitter here) this information should only be taken as an indicator of what might happen and not used as the basis for a fully fledged trust fundraising strategy! The full impact will only become clear with time and much depends on the duration of the current downturn. What is important is the clear message coming from trusts and foundations who aren’t ‘cutting and running’, but are trying hard to protect the charities they fund from any drop in income they may be experiencing themselves, despite there being no evidence of any clear commitment to counter-cyclical funding. What is certain is that the full extent of trusts’ and foundations’ exposure to the downturn and the wider knock-on effects, will not be fully revealed until next year and beyond.
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#1 by Bill Bruty on November 2nd, 2009
As the author of the Fundraising Training Ltd research into trust finances I feel that I ought to clairfy our findings (and add some more recent research). Firstly, trusts with an endowment of over £50 million tend to rely on dividend income to fund grant expenditure. Income or losses from share values have no impact – positively or negatively. Until 2008/2009 there had been no evidence of any reduction in dividends, hence few reductions in grant levels. However the FTSE 100 dividend values dropped by 9% in 2008/9, with many UK companies reducing their dividend for the first time in their history. This is bound to feed into grant making from 2011, especially if there is another fall in 2009/10. The impact will be eased by the common policy of ’smoothing’ expenditure budgets (basing each year’s budget on the average income levels over a preceding period. These horizons can vary from five to fifty years (as is the case for the National Trust). Consequently, I suspect that for these larger trusts there will be little change. The 20% increases in dividend values in 2007 and 2008 didn’t lead to similar increases in grant expenditure, so a drop is unlikely to have a negative impact.
For trusts with endowments of less than £50 million the picture is less certain – half of them tend to rely on ‘top-up’ donations to fund grants and it is clear that these donations have declined. As these trusts make up the numbers, but not the value of overall funding from trusts, it will sound like there is less money about.