Posted on July 30, 2002

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Foundation Endowments Shrink as Stock Values Tumble

During the economic boom of the 1990s, foundations became accustomed to growing endowments and steadily increasing grantmaking budgets. But the slumping stock market has reversed those trends, the Wall Street Journal reports, causing many foundations to delay new initiatives, trim their grantmaking budgets, and rethink their investment strategies.

The Princeton, New Jersey-based Robert Wood Johnson Foundation, for example, has seen its endowment drop roughly $2 billion, to $9.3 billion, over the last year. The organization has about 60 percent of its assets invested in shares of healthcare products company Johnson & Johnson, whose share price is down about 24 percent from its 52-week high. As a result, the foundation, which gave about $804 million to charitable organizations and causes in 2001, expects to give only $300 million this year. Despite the recent decline in the value of its portfolio, however, the foundation has no plans to cut its stake in Johnson & Johnson, which grew into one of the world's largest healthcare products companies under the direction of Robert Wood Johnson.

The Indianapolis-based Lilly Endowment also has no plans to diversify its portfolio, even though the value of its only holding — 158 million shares of pharmaceutical giant Eli Lilly & Co. — dropped below $8 billion last week, down from more than $13.5 billion in December. And while the Endowment still expects to award about $600 million to charitable organizations this year, spokeswoman Gretchen Wolfram told the Journal that, "If the stock price stays at $50, we may be looking at grant payments of $400 million instead of $600 million."

Even foundations with diversified portfolios have been affected by the declines in the major indices. The assets of the Philadelphia-based Pew Charitable Trusts are down some $730 million, to $4.07 billion, from $4.8 billion at the end of 2000, and Pew president Rebecca W. Rimel has asked her staff to identify low-priority projects that can be shelved and is planning to reduce new commitments by the Trusts to about $160 million next year, from $180 million this year.

In contrast, the John D. and Catherine T. MacArthur Foundation plans to increase its grant budget in 2003 to $192 million, up from $183 million in 2002. "We have a reserve that we set aside when the market was good, because we understood there would be moments when the market went down," said foundation president Jonathan Fanton. "We had planned to go up with our spending and we are able to do so."

Bank, David. “Foundations Feel the Pinch of Plunging Stock Market.” Wall Street Journal 7/29/02.

Primary Subject: Philanthropy and Voluntarism

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