The Market Ride: Implications for funders and their grantees

Editor’s Note: The recent downturn in the stock market has raised concerns among many in the family foundation world. To help put the recent decline in perspective, we offer the following guest post from Richard Marker, co-principal of Wise Philanthropy, a philanthropy advisory and education firm. The post originally appeared on Mr. Marker’s Wise Philanthropy blog and is shared here with his permission.

We’ve been here before. It wasn’t fun then and it isn’t fun now. No one and no foundation likes to see 10 or 20% of net worth or net assets disappear in the blink of an eye – or in our era, before our eyes on screens both large and small.

It certainly doesn’t make me happy. Wiser folks than I can comment on the causes and what you should and shouldn’t do to manage your investments. But there are some important lessons from past wild swings for those of us who work in the funding world:

• If you are a foundation, you should be celebrating your decision to do 3-year averaging for determining your asset base and grantmaking budgets. Whatever happens during the rest of this year, your grantmaking planning will have the cushion of time to do whatever longer term re-thinking may be necessary.
• This has a great advantage for those of your grantees who receive a substantial amount of their gifts from funders whose decisions are more checkbook sensitive. Unless there is a significant rebound by December — and that is still very possible given that the whole year is in front of us — they will all see reductions this year in their end of year giving but know that your prior commitments are reliable.
• History has shown that there can be various grantmaking approaches depending where things end up after the market settles down. It has also shown the fallacy of funders responding too quickly and precipitously. We know that recipient organizations will have differing needs: some will need to account for cash flow challenges of slower government reimbursables; some will feel that their own destiny lies in consideration of a merger that they had resisted previously; those that receive the majority of their support from major gifts and foundation grants will probably see a deferred response [see #1], but may have a slower recovery for the same reason; some, having 2008 still fresh in their memory might be panicking and asking their funders for emergency support – at a time when funders are psychologically spooked. Your own support – or non-support – should weigh how those needs align with your own giving strategy.
• Remember, we have an advantage this time around because of 2008. Many funders were forced to rethink our own priorities, values, and strategies. The market may have done very well these past few years, but not for such a long time that thoughtful funders ignored our own strategies carefully honed in 2009 and 2010.
• Those of you on the nonprofit side seeking funds should also take a deep breath. Thoughtful funders are waiting this out. Stressed investors are not in the mood to hear from panicked nonprofits. Hopefully you too learned the lessons of 2008-2009 and have deeper reserves, are more ready for uncertainties, and have an informed governance and leadership team able to steady your ship. If you are a start-up, you are forgiven if you don’t. If you have been around for a while, shame on you if you don’t.

As I said above, we’ve been here before. Anyone who says that we are in a cataclysmic time is probably needlessly histrionic. Anyone who said it wouldn’t happen again has refused to learn from history. And for the rest of us, take a nap; turn off the TV, and take that winter vacation you need more than ever.