Deciding Whether to Continue in Perpetuity or Spend Down

Increasingly, foundations are wrestling with a fundamental strategic question: should we plan to exist indefinitely , or should we spend down our assets within a defined period of time? In the Jewish world, this isn’t theoretical. The AVI CHAI Foundation (which I led in North America) and the Charles Bronfman Foundation have already spent down, or “sunsetted.” The Marcus Foundation and the Leon Levine Foundation have announced that they will as well. Beyond the Jewish community, the Gates Foundation recently joined the group of spend-down foundations. And this choice isn’t limited to institutional philanthropy. Donor Advised Funds and individual funders face the same core question.

Why do some choose to spend down? A few reasons rise to the top:

• Spending funds sooner to meet urgent needs and avoid wealth hoarding .
• Recognizing that in a family foundation, the next generation may be unable or uninterested in dedicating the time needed to make wise philanthropic investments.
• Addressing concerns tha, over generations the founders’ values may fade in the minds of future board members. In the worst-case scenario, a foundation might eventually support projects the founders would have found objectionable.
• The presence of an overwhelmingly compelling philanthropic opportunity requiring much greater funding than the annual payout presents itself. For instance, the Whitaker Foundation spent down in 2006 in order to create 40 biomedical engineering programs at universities across America.

On the other hand, many foundations point to compelling arguments agains  spending down:

• Family foundations may want to honor and perpetuate the founders’ legacy while giving future generations an ongoing opportunity to work together.
• Strategic foundations understand that meaningful societal change can unfold over years or even decades, and a spend-down could end grantmaking before the goals are achieved.
• Transformative philanthropic opportunities emerge in their own time. While spending down ensures near-term impact, it may prevent a foundation from being present when a breakthrough opportunity to address root causes emerges.
• Effectively spending a large sum of money in a short period of time is extraordinarily challenging. Both Michael Bloomberg and Bernie Marcus made very large philanthropic gifts and still found that market growth of their assets outpaced their giving. The pressure to spend quickly can push a foundation to drift from its strategy, make endowment gifts it would not otherwise make, or rush decisions without sufficient due diligence.

The decision  whether or not to spend-down is interconnected with values, strategy and core beliefs. The decision-making process for each foundation will be different. If you want to begin the process of considering whether a spend-down makes sense for you, please email me at yossi@jfunders.org.

Foundations in Focus: Guidance from JFN Consulting