How rich American families engage in philanthropy: report

Many of the richest American families gave more last year to charities, even as their portfolios fell in a down market.

It's a sign of the growing importance of philanthropy to ultrahigh net worth investors, and the growing need for advisors to help such clients achieve their legacy goals, a new study says. 

The Foundation Source, which bills itself as America's "largest provider of management solutions" for private foundations, published an annual report on Wednesday that found large shifts in giving and investing strategies among some of America's richest families last year. Across all private foundation sizes in the study, portfolios took money out of stocks and increased their allocations to alternatives and fixed income, reflecting similar investment trends by ultrarich families reported earlier this year by Goldman Sachs and Citi. 

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The study looked at 980 client foundations, whose assets ranged from $1 million to $500 million. In a bruising 2022, foundations saw a net 31.5% drop in asset value and 14.5% drop in growth, reflecting "the impact of a challenging economic climate," the Foundation Source said in a press release Wednesday. However, the foundations still collectively gave $111 million more in charitable aid last year than the year before. "This is a 7% increase in grants and 15% increase in dollars granted over the prior year," the organization said. In fact, while private foundations are required to pay out at least 5% of their assets each year, the foundations in the study exceeded that, on average giving 6.6%. 

Gillian Howell, head of client advisory solutions at Foundation Source, said in an interview that the greater giving reflects the unique ways that ultrawealthy clients engage in philanthropy. 

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"These individuals have already committed to charity. So whatever they have funded that charity with, is not their money anymore," Howell said. While some of the motivations included tax benefits, Howell also said that the extra largesse is also reflective of a certain noblesse oblige among these clients. "They feel a responsibility to step up in times of need, or in times of down markets." 

Howell also noted that while the education sector had long been the top recipient of funding from these foundations, in 2022 the top sector was "public and societal benefit," which encompasses many public policy and social services areas, including humanitarian aid to disaster areas; it received 19.5% of all grant dollars. "So Ukraine, Afghanistan, Hawaii. There was a lot going on in our world," in the past year, she said. 

In recent years, the Foundation Source has seen increased giving by individuals to international causes, Howell said. While for a long time Americans have been "very insular," she sees many from the millennial generation increasing their engagement and awareness of the outside world. 

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"Just think of all of the social media and all of the access people have to what's going on in the world today," said Howell, who is originally from Ireland and has worked in the field for over 30 years. "So much more than even when I was starting off in this space." 

The report also found that rich donors have gotten choosier about who gets their dollars. Large foundations in particular chose specific-purpose grants at a rate of 2-to-1 last year, reflecting a desire to know that their money was going to a selected cause and in a specific way.

"Sometimes it's unrestricted and maybe not as interested in the metrics. But I would say in general, I'm seeing more families are interested in knowing what's being done with their philanthropic dollars," Jay Goetschius, managing director, head of Florida at multifamily office Pitcairn, said in an interview.