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Might Not Be the Kind of Reports Foundations Like to Write, But Certainly Worth Reading

There’s a lot to commend a recently released report from the Commonwealth Fund that presents a concise, well-written, and comprehensible overview of the market meltdown and its impact on private foundation giving.  Anyone looking for a good primer of what went wrong and how the crash will affect foundation operations and giving going forward will find the New Financial Realities: The Response of Private Foundations a good read.

Among other things, the report, written by John E. Craig, Jr., the foundation’s executive vice president and chief operating officer, provides a quick summary of the cause of the collapse, which Craig describes as “clear in hindsight as they were disregarded in the making.”

Those signals included:
–Sustained increases in the U.S. money supply.
–Enormous credit expansion and indebtedness throughout the nation and world.
–Reluctance by the Federal Reserve to do anything to pierce the growing bubble.
–Weakening financial regulatory environment.
–Growth over the past 2 decades of “increasingly complicated financial instruments whose market value can be difficult to ascertain and whose risk can be easily misjudged.”
–Jump in risk-tasking “across all markets and investor groups.”

Of the possible rebound scenarios, Craig believes that the most likely is a return of between 5.7 to 10.4 percent over the next several years, providing we don’t suffer another sudden drop (that could see the S&P 500 plummet to 600 “or worse).”

Craig predicts that when the final tally is done, foundation losses between 2007 and 2008 will total $167 billion, or a 25 percent drop.

Craig estimates foundation giving between 2007 and 2009 will decline by about 6.5 percent, or nearly $3 billion. He writes that “at least in the short term, the effect of the market crash on giving will not be as great as it has been on foundation assets.” However, he adds that if the market doesn’t recover quickly, “the full impact of the crash will gradually come into play over the next several years.”

Talking about how his own foundation has been affected by the crash, Craig says that the Commonwealth Fund, which works to promote a high performing health care system in the nation, expects to reduce its spending by about 15 percent next year, another 10 percent the following year, and 8 percent in 2011-2012. However, he says the “Fund will make decisions on where to pare back spending based on strategic priorities, rather than simply applying across the board cuts.”

It was especially heartening to read the value Commonwealth places on human assets, including communications. He writes, “The Fund regards its intramural professional staff as its most important asset, embodying intellectual capital that has taken years to develop.” Among the “signature” activities the foundation expects to maintain, says Craig,  “are its uniquely rich Websites ( and”

A hat tip for a thoughtful analysis, jargon-free discussion, and helpful context for how foundations are likely to fare in these uncertain times.

–Bruce Trachtenberg


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