Press "Enter" to skip to content


Foundations that plan to operate for a limited time and then close (normally called “spend-down” foundations, though some dislike the phrase) often make an intriguing argument for why they prefer to operate under a deadline: They believe that a brief, large outlay of philanthropic capital can produce greater value for society than smaller amounts given out in perpetuity. Recent speakers at Duke — including George Hatch and Olivia Farr of the John Merck Fund and Chris Oechsli of the Atlantic Philanthropies — have made this argument with great conviction. (See their presentations here and here.)

The idea deserves a closer look for at least two reasons. First, perpetuity is a long time. Surely, if I keep making grants year after year after year, forever — even if they are not the most brilliant, far-reaching grants — sooner or later I should be able to out-perform any institution of the same size that uses up all its resources and closes its doors. Eventually, it would seem, the tortoise must outrun the hare if the hare quits the race.

Admittedly, value created in the far-distant future must be subjected to a discount if it’s to be weighed against achievements reached in the present. But endowments tend to grow in value over time, so I may well be doing much more good 20 years from now than I’m doing today. In any case, doesn’t value being produced forever eventually add up to more than value being produced temporarily? It’s a question on which a little math can shed some light — but the answer is neither simple nor obvious.

The second interesting feature of this claim is that it is (so far, at least) wholly unevaluated. How would a donor or a foundation manager know whether a time-limited program of grantmaking would be likely to produce more value than an unlimited one? What variables would one have to consider in order to formulate and then answer the question? A former investment manager at Atlantic posited one concise solution: “If you’re able to put money into projects that generate a social return, and that return compounds at a higher rate than your financial assets would, then in theory that’s the argument for spend-down.”

It sounds like a simple enough test to apply, and it would seem to offer an answer to both of the issues raised here. But the closer you look at it, the more complicated it becomes. Last March, Atlantic convened a high-octane panel of philanthropic advisers, scholars, and foundation executives to examine the question in some detail. The discussion quickly began to scale levels of complexity that surprised many of the participants. It proved, if nothing else, that the question is not only hard to answer, but fiendishly hard even to model. The proceedings are well worth a read, and are now available here. For those of a mathematical frame of mind, the discussion should prove especially engaging and provocative.

As the meeting wrapped up, however, several participants argued for stepping back from the math and applying the theoretical terms to some real-world cases, to help in understanding how the variables interact in actual foundation programs. To follow that advice, an examination of three Atlantic programs is currently being written, with exactly these questions in mind. The less mathematically inclined reader may want to wait for that report. We’ll have more to say about it in a month or two, and we’ll post it here when it’s done.

Tony Proscio