What we’ve learned about the role of a very specialized form of philanthropy and the challenges to growth.

By Joseph C. Imberman

Before we start let’s look at overall giving by category in 2018. The numbers are remarkable and need to be reviewed regularly.

Overall background data on giving in 2018 (Source – Giving USA 2019) :

• Giving by individuals in 2018 was 292 billion, up 1.1%
• Giving by foundations in 2018 was 75 billion, up 7.3%
• Giving by bequest in 2018 was 39 billion, or flat
• Giving by corporations in 2018 was 20 billion, up 5.4%

Federations and Jewish Community Foundation (JCF) endowment development has increased steadily for the last 20 years. Total endowment and donor advised fund assets in the Federation system alone which approximated 1 billion dollars in the 1970’s have grown to 20 billion in 2018.

Federation and Jewish community foundations manage donor advised funds largely for the purpose of development of lasting relationships with donors who already support their annual campaigns. The existence of literally billions of dollars under management in the Jewish community has occurred over a 40 year period at some cost to the communities and has largely been carried out for this purpose alone.

Grants on a Jewish Federation system-wide basis now exceed 1.5 billion per year. However, during the same period, assets held and acquired for philanthropic purposes by a broad group of banks, trust companies and investment firms have also grown (see above figures). Fifty years ago community foundations and Jewish federations (fund sponsors) had no competition from the for profit sector in the solicitation and management of endowment and donor advised funds. Today the market place for the philanthropy of the same donors (whatever their background and interest) is substantially more complex. A unique relationship now exists between the fund sponsors and the commercial institutions because of :

1. The for profits’ desire for visibility among wealthy contributors, Jewish or otherwise.
2. Federation/Foundation need for sponsorships of a variety of important marketing and development activities, and
3. The common concern for best investment management practices and the fact that many of the same for profit institutions manage the assets of fund sponsors.

These facts mean that the commercials are in frequent communication with all nonprofits (not just Federations) which manage substantial endowments for business development purposes. Let us be clear. More institutions whether for profit or not for profit increases all grant making to charities and is thus an unqualified good thing. For entities like Federations and JCF’s however there is an ongoing concern for the potential lost relationship with a family dedicated to supporting the community when that family creates a fund at a commercial institution which could have been held by a non profit fund sponsor like Federation.

What do we learn from these trends?

1. Banks (for example) have discerned that with the legal capacity and structure to do more than invest funds they can hire or utilize expertise to help wealthy donors in the donor advised fund sector to become much more knowledgeable philanthropists. Schwab, Vanguard, Fidelity and many others are firmly in this arena, and in starting and managing donor advised fund programs are providing high quality service and putting their finger on a major business development opportunity.
2. All manner of other charitable gifts emerge on a daily basis from commercial interaction with families around their estate and succession planning. Knowledge of the resulting gifts is communicated to the respective charities, but much is not reported until required by the circumstances of family decision, making, current funding of a charitable transaction, etc. Things that happen in the near term will not be discovered for many years into the future.
3. There are commercial institutions which invest in significant staffing to assist existing high end or new clients in grant making and charitable investment all over the world and have the capacity to educate these families in depth as well as manage family offices for the same clients. These complex donor services are still in their infancy in our nonprofit sector, particularly in the Federation world, which tends to fund activities of this kind only when circumstances absolutely dictate. However, the nonprofit sector in general can learn much about the vast array of issues and services which must be mastered in order to take already highly philanthropic families to a next level defined by detailed knowledge of family education around philanthropy, education about needs at home and abroad (as well as the institutions which serve those needs), the process of making and monitoring grants, managing board relationships, etc.
4. Federations and JCF’s have grown in internal capacity and sophistication but are still beholden to the logic of fund raising and development – feed the annual campaign first and then all other development projects, agencies or products, avoid internal conflict over donors where possible, attempt to integrate all efforts where logical in order to share expertise internally, build on the unique knowledge of the community as it relates to charitable needs locally, nationally and overseas. This complex set of internal decision making by institutions like Federations can result in missing the elephant in the room – the capacity of any one family or families to make large one time or multi year commitments to the future of the community. The largest communities have built this capacity but many others are just beginning and are always hamstrung by resource allocation issues.
5. The origination and creation of special materials to make donors aware of the case for giving to major Jewish community projects seems to come only with difficulty. The institutions are pulled by unique problems like security on our campuses or emergencies overseas and sometimes even have challenges with the judgments required to identify the most important projects which need funding at any one time. These are issues which the for profits do not face in the same way. Theirs is a view focused on the client. Public charities like federations and Jewish community foundations are focused on community first, client (donor) second.
6. Budgets and the financial mechanisms required to support special fund development, capital projects or endowment campaigns are a unique problem in the nonprofit endowment space. Fees charged against all funds do not pay for normal operations completely let alone expansion. This fact mitigates against success in staff growth at institutions like Federations which have limited resources, while for profits have deeper pockets to fund charitable stewardship and related activity on a start up and ongoing basis. It’s the rare Federation with the ability to provide ongoing programs and events which cover the broad array of potential topics which might intrigue “best” donor families to appear regularly for educational sessions which build the constituent relationship or institutional brand. UJA Federation-NY is an example of an institution which does in fact program regularly for endowment and legacy donors in the way in which large universities might but which small or intermediate sized federations would find impossible for lack of resources.

As we look to the future it is clear that the competition for both individual donors as well as institutional cash flow for either philanthropy or investment purposes will grow. To the extent that nonprofit endowment funds can focus senior trained and professional staff members as well as highly committed leadership to the task, success in this area may be predictable but slow (and obviously always effected by tax and legislative activity as well as economic variables). Without these elements, many donors will continue to regard their interactions around philanthropy, whether corporate or nonprofit as largely transactional and thus go to the best organized and lowest cost provider. The result for institutions, whether Jewish or general community foundations, could be an enormous opportunity lost. No one will ever be able to gauge the gifts or relationships which did not develop because the staffing or leadership wasn’t in place to focus on the right question at the right time with the right donor or because the institution wasn’t able to integrate and build development resources in a way which effectively balances both short term and long term needs and priorities of both client/donor as well as community.

Note: One Jewish Federation currently reorganizing to meet these challenges can be found at the Jewish Community of Montreal (Combined Jewish Appeal).

Joseph C. Imberman is a long time federation endowment professional and recent consultant. He was the Director of two large city endowment programs and a national staff member as well as consultant.