Growth of Small Foundations Puts Pressure on Investment Options

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Compiled by Noelle Barton, Caroline Bermudez, Maria Di Mento, Audrey Hill, and Anne W. Howard.

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June 09, 2008

Growth of Small Foundations Puts Pressure on Investment Options

The number of small foundation in the United States is growing and with it, the need for investment options to accommodate them, reports The New York Times.

According to the Urban Institute’s National Center for Charitable Statistics, there were 76,849 private foundations at the end of 2005, the most-recent figure available. That represents a 49-percent increase since 1995. Most private foundations, 67 percent, had assets of less than $1-million.

However, most investment firms have minimums that well exceed the assets of the majority of small foundations, with some requiring as much as $50-million in assets. Further complicating matters is that some leaders at small foundations want their investments to reflect their charitable missions or that they want to invest with more than one firm.

Some investment advisers say that people who want to put less than $1-million into a foundation should consider donor-advised funds, often run by large mutual-fund companies or community foundations. Philanthropists can still receive tax benefits and decide how their money is donated.

Another option is the low-cost index fund. David Salem, founding president of the Investment Fund for Foundations, said, “It can cost as much as $10,000 to administer even a $1-million private foundation. If it is a really small foundation, then I believe that the Vanguard index funds are a good starting point because you get broad diversification at low cost.”

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Comments

I suspect that a healthy percentage of the increase in small private foundations might be the push among trust banks to convert perpetual charitable trusts to private foundation status. I am a trust banker, and my employers filed dozens of applictions with IRS to convert these trusts.

— Steve Feldmann Jun 9, 02:07 PM #

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