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| Philanthropy |
The Paradox of Perpetuities
Matthew Schuerman
01/01/2004
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In a given year, very few foundations spend themselves down, but the occasional extinction of the largest ones generally creates a stir. Olin spent itself out for ideological reasons; Brooke Astor closed her late husband’s fund because he had no children and she was more than 100. The trustees of the Aaron Diamond Foundation decided that if they spent all the money in 10 years, they could construct a major AIDS research center, something they would never have been able to afford had they limited themselves to paying out a mere 5 percent. In so doing, the donor’s name gained a prominence it never would have achieved had the foundation tried to live forever. The Atlantic Philanthropies, an international foundation with financial offices in Bermuda, plans to spend down its $3.6 billion during the lifetime of its president, Chuck Feeney, the 79-year-old founder of Duty-Free Shopper. Arguably, small philanthropists who run family foundations or donor-advised funds have even more reason than their larger counterparts to spend down. "If you have a million dollars to spend," remarks Olin Foundation President James Piereson, "what will that mean to spend the proceeds of a million dollars over perpetuity? That’s $50,000 a year. Really, what are you accomplishing?"
Interestingly, the Olin Foundation’s aggressive spending propelled the organization (whose assets peaked at $100 million) to the forefront of conservative thought, allowing it to play like a $400-million hitter on the political field; it could afford to spend 20 percent of its assets annually instead of the 5 percent or 6 percent that perpetual foundations tend to distribute. "There are a few who say, ‘Why are you doing this? Because we really need the money, and it’s akin to committing suicide,’" Piereson says. "Had we not followed this strategy, we could not have spent that aggressively over the years, so our grantees would not have seen the size of grants that we made."
Forever Is a Very Long Time
The most famous advocate for spending down came not from the political right but from the left. In 1929, Julius S. Rosenwald noted how many trusts had been set up for causes that no longer existed: orphanages, apprenticeships, an 80-year-old fund for pioneers passing through St. Louis to the Western frontier. Rosenwald—who made his fortune by streamlining Sears, Roebuck and Co.’s catalog warehouse and who spent millions on YMCAs and schools and colleges for black students in the South—warned that foundations might one day care more about themselves than about those they were supposed to help. "I think it is almost inevitable that as trustees and officers of perpetuities grow old, they become more concerned to conserve the funds in their care than to wring from those funds the greatest possible usefulness," he wrote in the Atlantic Monthly. "If the funds must exhaust themselves within a generation, no bureaucracy is likely to develop around them."
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