In spending down their assets, trusts and foundations are making a strategic change of direction which could pose a threat to the charity sector, says Ben Wilson.
Kelly Sikkema via unsplash
Recently, the charity sector received news from two significant trusts and foundations that they plan to spend down their endowment over the next few years. The Albert Hunt Trust will mark its 50th anniversary by spending down in 2029, and the Lankelly Chase Foundation is spending down its endowment over the next five years. This comes off the back of the recent closures of the J P Getty Jnr Trust, Monument Trust, Shirley Foundation and the Peter Moores Foundation.
But what is spending down? In its simplest terms, it refers to a trust or foundation spending its assets over a short time period, rather than using them to accumulate income for distribution to charities on an annual basis.
Why are funders spending down?
Looking at the motivations for trusts and foundations to spend down and distribute their assets over a short time period, a recent paper by Cambridge Associates highlights a number of reasons why this might be the case:
“Some causes – such as climate justice – feel urgent to donors and they respond with more immediate action. Other donors believe greater financial support today through a spend-down fund compounds their impact, leading to better outcomes in totality compared to providing limited support over a longer time horizon. Still other donors prefer to spend-down funds because they wish to be personally involved with their philanthropic work, rather than leaving heirs to guess at their intentions.”
These arguments are mirrored by thoughts from the Tubney Trust. The report Giving our all: reflections of a spend out charity, highlights ten reasons why trusts and foundations might decide to spend out, which include helping to address an immediate need, focusing the attention of staff and trustees, to set an example to others and to maximise immediate impact.
The trust’s Chair, Breda McGuire, alludes to some of these when she says: “By adopting a spend-down strategy, this will focus the trustees to utilise the resources of the trust in a targeted way to achieve the trust’s objectives at a time of unparalleled need.”
A change in strategic direction
The emergence of spending down is a change in strategic direction from conventional philanthropic practices, which usually utilise the investment return of an endowment to provide support in perpetuity to good causes.
With such vast assets at their disposal, few could argue that these funders have a responsibility to solve the problems of today. In this debate, the question about giving is about how much and how quickly.
Increasingly, societal issues such as climate change are time-limited and urgent, which may explain the rising emergence of the trend. But is it a considerable risk or an opportunity for arts organisations?
Assessing the risk
In terms of risk, we need to contextualise it in the total amount of funding from trusts and foundations given to the arts. A recent (2020/21) Paul Hamlyn study on ‘Funding for Arts and Culture’ assessing 19 of the largest UK trusts and foundations found c.£88m was gifted to arts organisations which represents c.31% of all total giving. More worryingly, just four trusts are responsible for 75% of all arts funding: Esmée Fairbairn, Garfield Weston, Paul Hamlyn and Wolfson Foundation.
If this is a growing trend – and it is hard to judge at this time – then a decision by one of the larger arts funders is likely to significantly damage the arts and cultural sector. In 2021 there were 228 new grant makers featured in Factary’s New Trust Update, which could help to fill this gap but their most commonly-supported sectors were Poverty & Welfare, Education & Training and Health. This is concerning.
Secondly, while only c.10% of all income to arts organisations come from trusts and foundations, according to the latest UK Giving Survey developed by CAF (2023), just 1% of the £12.7bn given by individuals in 2022 is given to arts and cultural organisations. So arts organisations will need to be very enterprising in how they seek to fill these funding gaps, which will be exacerbated if major trusts seek to spend down.
How can arts organisations respond to this threat?
Arts organisations must continue to focus on developing sustainable business models which are not over-reliant on income from a limited number of sources. If news of a funder deciding to spend down fills you with dread, ask yourself whether you might be over reliant on such funding. And if so, how can you diversify to generating income elsewhere. Perhaps now is the time to invest in a new fundraising strategy. Here are a few tips:
Be bold: There are likely to be substantial funds available for a time limited period. How could a substantial investment support your organisation to develop future sustainability? Is this time to dust off capital plans which could generate additional income in the future, or to think about how to futureproof your organisation?
Build relationships: Don’t be afraid to approach the relevant trust or foundation to better understand its plans. How might you develop something which specifically fits with its plans for impact?
Focus on impact: Ensure you understand your charitable impact and how a substantial investment could help achieve this in the long-term. Funders will want to ensure spending down of their funds leaves a legacy. How can you support this ambition?
With both the competitive nature of the fundraising environment and the current uncertainty in the sector, it is too early to judge whether the trend to spend down will continue. Nevertheless, organisations must be aware of the risks and take steps to mitigate them in their business models and fundraising strategies.
With any systemic change comes opportunity; it is how the sector takes advantage of these times which defines what the future holds.
What do you think? Arts Fundraising & Philanthropy would like to hear your views as we continue to provide guidance on how charities can respond to changes in trust funding.
This article is part of a series on the theme Fundraising for the Future, contributed by Arts Fundraising & Philanthropy.