Giving Compass' Take:

• Mark Kramer offers advice on how and why foundations should increase payouts beyond the 5% floor to respond to the COVID-19 pandemic.

• Why is it so difficult to convince yourself and others to increase payouts today? Are you prepared to find innovative ways to increase payouts within your foundation? 

• Learn more about the necessity for increased giving as soon as possible during the COVID-19 crisis.

The current COVID-19 crisis has created immense and unexpected hardship among many foundation grantees and the people they serve. Foundations are stepping up by finding innovative ways to go beyond their normal grantmaking, removing restrictions on the use of grant funds, accelerating payment schedules, and streamlining their grant application and approval process. The big question, however, is whether to increase their grant payout, as many have called on them to do, including Vu Le and several philanthropy-serving organizations. This is a particularly challenging question at a time when endowment portfolios are depressed and future investment returns look less promising.

The longstanding payout debate can be confusing and emotional, often pitting the foundation’s investment side against its program side. The investment team wants to preserve and grow the endowment; the program side wants to give out as much money as possible to maximize impact. Both sides have valid perspectives and there is no automatic answer, but the threshold question is simple: What limitations do foundations face in paying out more than 5%?

Money may grow over time, but I would suggest that the delayed cost of solving society’s problems grows much, much faster. However longterm the problem that a foundation wants to tackle, the foundation may still find that spending more money sooner is ultimately more effective in delivering on the donor’s charitable intent.

In short, the payout decision should never simply default to the 5% floor, nor should that be seen as an ironclad limitation. It should be a decision made annually that balances investment returns and inflation with the foundation’s charitable purpose and the timely needs of those it serves.

Read the full article about how foundations can increase payouts by Mark Kramer at FSG.