By: Iris van Straten
Spending Out: learning lessons from time-limited grant-making
An ACF Guide for Member Trustees and Staff
The Association of Charitable Foundations (ACF) is the membership association for foundations and grant-making charities in the UK. For 25 years we have supported trusts and foundations; respecting and safeguarding their independence, and helping them to be effective in the many ways that they use their resources.
The term ‘spending out’ refers to the process of spending both endowment income and capital, with a view to using up all the assets of a trust over a certain period. In the US the process is often called ‘spending down’. This paper takes in considerations all the ways in which this is done
1. For who is this?
This guide is of interest to any grant-making body or individual philanthropist concerned to make best use of their resources in challenging time and most especially to any trust or individual contemplating confining their spending to a limited period ahead.
2. Structure and contents
This short paper is one of a number of resources on effective practice for trusts and foundations. It draws mostly on the experiences of foundations with a limited life span. Feedback from ACF members has suggested doing more research to donors’ personal motivations and to their ‘giving while living’ approach.
ACF’s purpose in making this paper was not to advocate for or against spending out as a strategy as this is something that is entirely for them to decide. The aim however is to capture issues and key questions that members have asked in preparing for spending out and to offer ideas on how others might use this learning. This will provide a structure for further discussions and decision-making.
Part 1 of the paper focuses on the reasons why members have chosen to spend out and where they feel other foundations might benefit from considering this option in their strategic planning.
Part 2 explores in more detail questions and ideas spending-out foundations are asking themselves in order to comprehend how best to use its resources to meet its mission.
Part 1: Choosing to spend out
3. Who is spending out?
People, groups, foundations or trusts can have different motives for spending out.
New philanthropists or family trusts often feel a strong connection to the money they have to spend and to their visions. By ‘giving while living’ they contribute time, contacts and expertise as well as funds and they also find personal satisfaction in their philanthropic activity.
Another motivation for spending-out can be mission-related imperatives; spending for a larger purpose, grant investments with the potential to deliver large and sustainable social and economic returns.
4. An effective time-limited foundation
Trustees of spending-out foundations have diverse views about their purpose and their responsibilities, about their legacies and achievements. There is no single model for who should spend out and how they might best do that. Many would however argue that spending out has focused their minds in a way that nothing else can. All trusts that have contributed to this paper have had to make hard decisions about what they want to achieve, how and how to measure these achievements.
Part 2 of the paper reflects on these challenges in more detail.
Part 2: Questions and Ideas
5. Mission and objectives
Trusts and foundations are concerned about the change their funds will help to create. Spending-out foundations have asked themselves several key questions:
– What would it enable us to achieve?
– And over what timescale?
– Why is it important? What difference will it make?
– What other resources can we offer? Can we offer expertise, contacts, and reputation, as well as our money?
– How will we be able to judge our progress and achievements?
Answers to these questions reflect each foundation:
They will have different views on impact of their giving. Their focuses of spreading their resources can differ. Foundations have different stages of development depending on where they are in their development. There is a difference in attitudes to risk in spending. The role of the trust in delivery is taken into consideration; spending-out trusts either act largely or solely as grant makers, but others have become more active partners in achieving the goals they have agrees on. Lastly, there are differences in the levels of focus on learning within the process of spending-out.
6. Governance and decision-making
There is a difference in levels and approaches to governance within a foundation when it comes to decision-making, depending on the life span and general goals of a foundation.
7. Delivering the programme
Spending-out foundations also need to look afresh at how to develop and deliver funding programmes to best support the spending-out strategy. This means asking questions about the grant-making models they want to use, the relationships with grantees and the resources they need to work effectively.
8. Measuring success
Many limited-life foundations argue that measurement of impact is one of their most important functions. They all need to keep an eye on the progress they are making towards achieving their goals. And most want to capture and share these achievements. They need to decide:
– What milestones and indicators to use for measuring progress?
– What information to collect from the organizations they support?
– Whether they want to build a bigger picture across their spending – and if yes, how they will do that?
– Who their learning is for and how they will get it to these audiences?
Spending-out foundations do face two distinctive challenges in assessing progress and impact:
1. A technical one to define whether important lessons are likely to emerge after the lifetime of the trust.
2. A trickier one to resolve as it relates to how spending-out foundations might respond to poor results from their progress monitoring.
9. Finances and investment
Spending-out foundations are much less tolerant of income volatility than foundations with a permanent or long-term life as they have less time to make up for losses.
10. Staffing and human resources
For foundations with paid staff, the quality of the people they employ is critical to their success. This is an issue particular for spending-out foundations, as they need to keep good staff delivering their strategy, while at the same time their employees are of short-term stay because the foundation may come to a closure.
11. Leaving a legacy
Spending-out foundations all face the question of what happens when they are gone and they have to come up with an exit strategy. There is a temptation to want to leave as much as possible, but some trusts caution that all that remains are boxes and files of unread reports. They would strongly recommend that the question of legacy is implemented in strategic planning from the start, so that it is properly embedded in the spending-out plan and the best results can be achieved.
12. Conclusions and next steps
The aim of the writers of this paper was to prove usefulness to others in continuing to think about how their own foundation can use resources most effectively now and in the future. The writes hope to have built a resource bank, bringing together experience and material around the processes of closing a foundation and all that needs to be considered. They will also prepare materials for existing and potential philanthropists considering establishing a foundation to work over a limited period and to help in their planning.
The writers encourage any member, who decides to adopt a full of partial spending-out strategy to join the ACF members working together to share ideas and experience and contribute to the development of approaches to the challenges of spending out well.
By: Iris van Straten