U.S. foundation portfolios grew more than 17%, or $230 billion, during the period covering all of 2023 (11% growth) and the first quarter of this year (6% growth) to reach a record high of $1.55 trillion.

The asset growth of the past 15 months caps a five-year period during which foundation portfolios grew by more than 50% ($550 billion) from the $1 trillion they had on hand at the start of 2019, according to new data compiled by research outfit FoundationMark in Lewes, Delaware.

The growth came even as foundation grantmaking during the same period totaled more than $400 billion, the data showed. For nonprofits that depend on these grants, the latest numbers portend good news in the form of an expected increase in foundation disbursements for this year that will likely surpass $100 billion for the first time. Preliminary estimates showed foundation giving went up 5.7% ($5.2 billion) to $97.9 billion during 2023 with giving forecasted to go up an additional 5.3% ($5.2 billion) to $103.1 billion during 2024.

If these forecasts hold, total foundation giving for this year would amount to about 7% of their total assets. The minimum distribution requirement is 5%. Still, the forecasted giving amounts are only projections. “Our forecast is based only on the estimated current asset level at the end of the first quarter,” explained John Seitz, founder and CEO of FoundationMark.

Because grantmakers often base their giving on prior years’ portfolio performance, strong or weak asset performance during a given year doesn’t necessarily correlate with giving for that year. In 2022, for example, foundation disbursements rose 7.6% despite asset values that plummeted 15.5% for that year. In 2023, foundation disbursements rose only 5.7% despite 11% growth in assets.

The three-year rolling average asset level is considered a better barometer of expected giving because it helps smooth out the effects of market volatility. This average is the basis for the report’s forecasted giving amounts for 2024.

Foundation assets are often subject to fluctuation driven by a combination of incoming contributions, investment performance, and outgoing disbursements, Seitz said. About 30% of foundations’ asset growth during the past five years came from new contributions. The other 70% came from investment returns including cash, stocks, bonds and real estate.

A bull market helped boost foundations’ investment returns alone by 15.5% during 2023 and by another 6.6% during the first quarter of 2024. These were roughly in line with returns for the traditional balanced institutional portfolio of 60% stocks and 40% bonds. However, over longer periods, foundation investments have lagged the traditional institutional portfolio. “In the five-year period to March 2024, foundations gained 8.2% per year compared to the 60/40 portfolio’s gain of 9.3%, and the ten-year numbers were 6.8% for foundations and 8.5% for the 60/40 portfolio,” the authors wrote.

FoundationMark, a nonprofit, aggregates data on foundations’ financial performance from Internal Revenue Service filings of more than 40,000 foundations nationwide with assets of $1 million or more. These foundations collectively comprise about 98% of all foundation assets in the country, according to Seitz. Foundation IQ, a sister organization, operates as a for-profit consultancy to foundations and other nonprofit, for-profit, and governmental institutions.

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Source From Non Profit Times