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For high-net-worth (HNW) families, philanthropy is an ideal way to connect their passions to a charitable mission and work collaboratively across generations to build and preserve their legacies. But those missions became increasingly challenging to pursue last year amid a market downturn, geopolitical and economic uncertainty, and record-high inflation. My firm, Foundation Source, recently analyzed nearly 1,000 private foundations, revealing that while foundations gave at record-high levels in 2022, they experienced a 14.5% decline in foundation growth and a 31.5% drop in asset value.
While markets are showing signs of rebounding, underlying fundamentals remain mixed, which could have implications on giving for the remainder of the year. In fact, as you’re having conversations with clients about their end of year plans, it’s a great opportunity to review their progress, consider what may come in the year ahead, and talk through tools and strategies that can help them continue to make an impact with their philanthropy.
Our findings provide a benchmark for wealthy philanthropists and the advisors who support them. Here are six key trends for HNW donors to consider during your giving season conversations:
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Grant dollars increased by 15% year-over-year. After record giving in 2020 and 2021, the foundations we studied gave even more abundantly in 2022 despite the year’s challenging macro-economic conditions. The foundations we studied collectively gave $111 million more in 2022, making a total of 31,373 grants representing $865 million in charitable aid. This is a 7% increase in grants and 15% increase in dollars granted over the prior year.
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Foundations gave an average of 6.6% of assets. While foundations are required to give at least 5% of their assets every year to charitable endeavors, on average they give more. This trend of generosity has been constant over the 14 years we’ve conducted this analysis, with giving in 2022 exceeding the minimum distribution requirement by 1.6%.
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Larger foundations are more likely to make specific-purpose grants. Grants can be made for general operations support, essentially allowing nonprofits to use the funding as they see fit, or for a specific purpose. The larger foundations in our study sample (those with more than $50 million in assets) favored specific-purpose grants at a rate of 2:1 to ensure their missions were being pursued in a way that aligns with their vision and incorporating documents.
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Public and societal-benefit charities captured the most grant dollars. Overall, the public/societal benefit sector attracted 19.5% of charitable dollars, a 2% increase in funding from 2021, and was one of the most popular categories among funders. Education continued to be a major focus for foundations as well, capturing 18.1% of funding.
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Advanced grantmaking features helped get aid where it was needed most. While gifts to public charities are the cornerstone of foundation giving, the features of a private foundation allow funders to deploy assets in a wide variety of ways to pursue their missions. For example, the foundations we studied increased their use of gifts to individuals (GTIs) by 40% over 2021 through which they can issue emergency/hardship funding directly to people in need (instead of through a charity) and run their own scholarship and awards programs. They also nearly doubled their funding for non-501©(3) organizations, such as volunteer fire departments and civic leagues.
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Endowment asset allocation ensures philanthropy remains strong in any economy. As wealth advisors, you understand the importance of thinking long-term and resisting impulsive reactions to short-term market trends – and private foundations embrace this tenet as well. The endowments of the smaller foundations in our sample (those with $1 million to $10 million in assets) maintained the highest allocations to public equities (57.9%), fixed income (15.5%) and cash (12.2%) to ensure liquidity for their giving. The larger foundations conversely had the highest allocation to alternatives (28.0%) to help provide diversification and return potential to their long-term portfolios.
To view our full study on HNW giving, visit here.
Hannah Shaw Grove has spent three decades studying and working with high-net-worth families, family offices and their closest advisors on achieving their wealth management priorities. She is chief marketing officer at Foundation Source, the nation’s largest provider of support services to private foundations. The firm works in partnership with financial and legal advisors as well as directly with individuals and families.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
