The Future We Want: Capitalization

Six months into the pandemic, we are beginning to see evidence of how the grantmaking field is responding to this historic moment. I’m writing to reflect on the importance of capitalization and financing to our field.

A recent study by Exponent Philanthropy and PEAK Grantmaking of U.S. foundation giving revealed that about half of survey respondents say they’ll give more this year because of the pandemic. About half of study respondents contributed to a regional or national rapid response fund, a local relief fund or opened their own rapid response fund.

Shifting Practices, Sharing Power? How U.S. Philanthropy is Responding to the 2020 Crises is a new report from Council on Foundations, Philanthropy California, and Dalberg Advisors, which outlines how the U.S. philanthropic sector (represented by 250 foundations) is responding to the 2020 crises. Shifting Practices found that 60% of foundations surveyed are increasing their giving this year with increases by an average of ~17%, mostly through increasing payout rates beyond the congressionally-mandated 5%. Over 85% of respondents are adopting flexible grantmaking practices for existing grantees, with 30% providing additional technical support.

The Center for Disaster Philanthropy’s study, Philanthropy and COVID-19 in the first half of 2020, which tracked foundation and individual giving globally, reveals that more than 775 foundations committed to flexible funding in response to COVID-19, with many foundations committing to increase their payout rates.

GIA believes it is essential to continue and expand these short-term trends into long-term practices. The Exponent Philanthropy and PEAK Grantmaking study revealed that over half of respondents were willing to have transparent conversations with their grantees and to offer general operating support in the future. Only 36% of study respondents plan to continue surveying their grantees or community to help anticipate emergent needs. Pre-pandemic studies by Center for Disaster Philanthropy, found that 64% of funding given in response to a disaster or emergency went response and relief; 17% of this giving went to reconstruction and recovery; and only 2% went to resilience and preparedness – ratios that are fairly typical of disaster philanthropy. A resilient system puts resources into preparation.

These study findings, the uneven post-Great Recession recovery, and the current impact of the pandemic are among the reasons why GIA focuses on Capitalization – the provision of capital to organizations that allows them to achieve their missions over time. Revenue is support that is intended to be spent in the short-term on services, programs, discrete outputs. Capital is support intended to be saved so that it may be used to seize opportunities or to support the organization and its staff members in times of market volatility or setbacks. Funds that can be used to support salaries during setbacks come from administrative overhead, general operating support and funding specifically earmarked for operating, opportunity or risk reserves. These approaches are essential elements of trust-based philanthropy. GIA is looking forward to sharing insights from our Capitalization workshops online this winter.

As we’ve experienced in the past, recessions typically trigger a drop in giving. As we consider the future, it is essential that we deepen our engagement with other sources of financing, as GIA most recently highlighted in our webinar, Reimagining the Economy with Innovative Support. According to Shifting Practices, only around 20% of endowed respondents plan to explore new investment practices that maximize the impact of their financial resources. GIA outlines our own investment journey here and shares Laura Callanan’s advice on leveraging private investment for the creative economy here. GIA’s upcoming virtual convening Power, Practice, Resilience | Remix’d, will include ArtPlace America discussing how to unlock non-grant capital, such as program and mission-related investments, equity investments, loan guarantees, and other types of financial instruments to advance grantees’ missions. The GIA online convening will also feature a presentation on impact investments by Blue Rider Group at Morgan Stanley and The Cleveland Foundation.

This is a time of great opportunity for a new future, as long as we recognize and embrace it. As we look around us, we see the elements of the future we want. We see the importance of capitalization, and of the inclusion of the arts in all private financing instruments. These need not be beautiful exceptions. These efforts can be our collective future.