The Atlantic

Charitable Giving Is Only a Small Part of What Foundations Do With Their Money

Most of their capital doesn’t wind up in grants, but in investments. Is the latter the key to maximum impact?
Source: Orlin Wagner / AP

Foundations make up a big part—about a sixth—of all the charitable giving that happens in the U.S. But some would argue that their biggest impact comes not from the money they give away, but from the far larger pile of assets they hold.

Most of the attention foundations receive is for the grants they make. U.S. law requires most foundations to pay out at least five percent of their net assets to charitable causes every year. That often leaves 95 percent of their holdings: a collection of assets that attracts much less attention. In 2012, a little over $300 billion was given away in total in the U.S.—that’s everything from foundation grants to money people gave at church. That year, foundations reported more than $700 billion in assets.

Typically, that heap of assets is managed like any other, to maximize its financial value. One set of people in a foundation would manage it, and another set would manage the grant-funded programs the foundation oversees. But a growing number of foundations are exploring impact investing with their portfolios—seeking not just financial returns, but social benefits.

Few foundations have gone further in this direction than the F.B. Heron Foundation, which aims to alleviate poverty and is based in New York. A few years ago, Heron announced that it was going to stop thinking of its capital in two parts—assets and programs. Instead, wrote Clara Miller, Heron’s president, “Our fundamental question for deployment of all capital will be, ‘What is the highest and best use of this asset for furthering our mission?’ Financial returns to our own portfolio will be a necessary part of answering that question, but so will returns to society, to the organizations

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