By Lauren Kotkin, Exponent Philanthropy
Philanthropic assets are sometimes divided into two parts: the money we give and the money we invest.
At the very least, we want our investments to earn enough to support our mission and our philanthropic goals. But that aspiration is clouded by two unpredictable factors:
- Market reality—We don’t know when the markets will have a good or bad year. For example, take 2008 (bad) and 2013 (good). See more on that comparison
- Emotional reality—We don’t know when or how the dynamics of particular communities or causes will affect our giving. For example, there are natural disasters, community issues, political battles. For all our planning, there are some years we want to give more.
How should we manage the realities and all their unknowns in a way that allows us to continue to give in support of our mission?
U.S. Trust Bank of America’s Steve Campisi advises in his forthcoming Quarterly Market Update for Philanthropy that, as fiduciary stewards, a philanthropist’s focus “should be on the troughs of the market cycles rather than the peaks, with an emphasis on preserving enough value through the troughs to continue to support the mission.”
How do you do this?
For starters, aim for what Steve calls a “virtuous cycle” of building a reserve and spending it down—a positive and natural result of the careful alignment of investment strategy and spending rate.
As he says, “…understand that peak times are the natural result of building portfolio value during good market years. These produce times of surplus value (not simply high water marks) where the portfolio has built a sufficient reserve that may be spent down to sustain financial support for the mission throughout subsequent weak market years.”
The most important decision for long-term philanthropic success is to earn a return that exceeds spending plus inflation, so that these sustaining surpluses may be built up during good market years, thereby allowing the organization to continue to fund its mission throughout the inevitable weak market years.
On May 13, Steve will share his thoughts on how the markets are shaping up in 2014.
Related resources
A Checklist for Foundation Investors
Directory of Foundation and Philanthropy Advisors, a searchable online directory of Exponent Philanthropy member-nominated advisors
Senior Program Director Lauren Kotkin plans a range of educational programs for the Exponent Philanthropy community, including conferences, webinars, and conference calls. She also dedicates a portion of her time to managing our resources on investments. Previously, she worked at the Council on Foundations in the Family Foundation Services department. Lauren holds an undergraduate degree from Duke University and an M.Ed. from Lesley University, with a focus on using arts in education.
