Wall Street Journal Examines How Some Foundations, Including AIDS-Related Groups, Are Spending Now Instead of Sustaining Their Endowments

The Wall Street Journal today profiles the growing trend among foundations to "accelerate spending on today's critical problems" in an effort to maximize the "social returns" -- such as preventing the spread of HIV and deaths from AIDS-related causes -- instead of limiting annual payouts in order to provide funds indefinitely. A 1981 federal tax-code change allowed foundations to distribute less than their annual earnings on their assets, and the average foundation distribution rate hovers around the legal minimum of 5% of assets. However, some foundation leaders are questioning that practice after some analyses showed that "a dollar spent now can be worth more than one, or even two, spent later," according to the Journal. In addition, the financial returns on foundations' investments are lower than the expected social returns because of the "slump" in the stock market. Paul Jansen, director of McKinsey & Co.'s Institute on the Nonprofit Sector, said that these facts "forc[e]" foundation leaders to ask themselves: "Would we all have been better off if you had given that money out last year and had it deliver benefits, than we are now, with your having lost 15% to 30% of it in the stock-market decline?" For example, the Aaron Diamond Foundation in the 1980s decided to increase annual donations from about $7 million to $22 million in order to "maximize the impact" of its $150 million endowment over 10 years. One of the foundation's last donations was $35 million to establish the Aaron Diamond AIDS Research Center -- now the United States' largest private HIV/AIDS research facility -- and to hire then-unknown Dr. David Ho, who has since been credited with the "breakthrough" development of antiretroviral drug combinations and has helped gain more money to sustain the center's research. Although the Bill & Melinda Gates Foundation is managed as a perpetual endowment -- one that limits annual payouts in order to be able to provide them in perpetuity -- Bill Gates said he began donating his money "much earlier" than he had originally planned. "I don't want to wait until I'm in my 60s to address things, particularly things that are epidemic, like AIDS, where if you catch it early the interventions are very dramatic," Gates said, adding, "Disease won't wait" (Bank, Wall Street Journal, 9/10).