At the end of the 19^th century, philanthropy was significantly transformed from being an ad hoc form of giving to meet a specific need for support or assistance, to a highly strategic, investment-based way of doing good, potentially in perpetuity.
 
The shift was driven by a recognition that effective investment of donor funds could not only enhance and broaden their impact, but also extend the timeline over which they could be leveraged in support of beneficiaries.
 
Since the likes of Sage, Carnegie, Ford and Rockefeller pioneered this strategic philanthropic giving, investing in capital markets, typically by means of philanthropic foundations or trusts,  has been the preferred approach to giving by many affluent individuals, families and organisations. And it is still a highly effective model by which to ensure the sustainability and impact of such giving.
 
The logic is sound. Investing in financial markets offers the best potential for capital growth over time, thereby enabling philanthropic trusts to do more, for longer, as their well-managed investment portfolios grow.
 
However, the catastrophic global impact of Covid-19 has given many of these philanthropic foundations pause for thought on whether it is morally acceptable to retain a large, future-focused philanthropic investment portfolio when there are so many people in dire need of help right now.
 
Unfortunately, there is no easy answer. And the response by each philanthropy foundation will largely depend on the reasons for its existence, it’s giving mandate, and some difficult conversations between trustees, donors and beneficiaries.
 
Some foundations are leaning towards fundamentally rethinking their long-term objectives and using their assets to make a positive difference right now. The 52-year-old Alfred and Mary Douty Foundation, which was established to foster equitable opportunities for children and youth in Pennsylvania, USA, is a case in point. The foundation has decided to wind down its operations as a private foundation, liquidate its assets, and apply them now to accelerate and amplify change in the sectors it supports.
 
It’s a noble decision, and one that must have been extremely difficult for the foundation to make. But it’s not necessarily the right course of action for every philanthropic entity. After all, if every foundation wound up its operations and disbursed its assets, the immediate benefits would be significant, but so too would the negative ramifications for those in need of help in years and decades to come.
 
But for those foundations that do wish to retain their long-term objective to do good, the current depressed state of the markets, the difficult economic climate, and the repercussions of both on large parts of society, demand that some challenging discussions be held. This is especially true for foundations operating in South Africa. Covid-19 impacted massively on already pedestrian and volatile SA markets, eroding the values of most investment portfolios. And given that many foundations depend on investments (their own or those of their donors), and especially dividends, to bolster their capital bases, the funds available for distribution may be highly constrained for some years to come. Add to this, the desire of many donors and foundations to use at least some of their assets to support immediate social needs, and the challenge of securing long-term philanthropic sustainability becomes clear.
 
Against this backdrop, a vital first strategic step required of foundation trustees is that they honestly assess the viability of their distribution strategies, and be open to revising their approach, in consultation with their donors and beneficiaries, to balance it against the likelihood of lower growth going forward.
 
This potentially protracted low-growth environment also means that it is incumbent on trustees to review their investment objectives and discuss these, realistically, with their investment managers. While it is impossible to predict what the portfolio returns will be over the next 10 years, it is essential that expectations are realistic, and asset allocations adapted, where necessary, to better balance risk and returns in an uncertain environment. Of course, a more risk averse approach may result in lower growth, which is why these discussions must also inform the aforementioned distribution strategy amendments, and vice versa.
 
Finally, it may be necessary for trustees to make some tough decisions regarding the nature and extent of the support they offer in the future. In some cases, a more targeted approach may be needed, where the number of beneficiary organisations is reduced to ensure the longevity of funding and maximise its impact. These conversations will obviously need to include input from donors, and possibly beneficiaries, and also cover issues like whether stakeholders are prepared to ‘sacrifice’ a measure of future support in order to deliver assistance where it is needed now.
 
Ultimately, while the content of these conversations will differ from foundation to foundation, what matters most is that trustees are proactive in initiating them as soon as possible. And where there are gaps in understanding or skill, the value of external input from a professional philanthropy consultant or management body cannot be over-estimated.
 
The bottom line is that, in this time of unprecedented demand for philanthropic support, trustees of foundations are going to have to balance providing immediate relief with social impact in the future. And honest, open and transparent communication between all foundation partners is the only way of achieving such balance.
 
SOURCES
 
Noxolo Hlongwane, Head: Philanthropy and Warren Poole, Wealth Manager at Nedbank Private Wealth.