New Study on Private Foundation Payout Rates
The Council of Michigan Foundation, Johnson Center for Philanthropy (GVSU), and Plante Moran Financial Advisors recently released “An Evaluation of Private Foundation Model Portfolios, Investment Returns, and Payout Rates,” which explores the 5% payout rate for private foundations.
Brittany Kienker, Principal and Owner of Kienker Consulting, served on the project team for this research, as well as being one of the main contacts for the report. If you are trying to reach her to request more information about this research series, please use her CMF email address (bkienker@michiganfoundations.org).
For reference, the full release from CMF is included below:
New CMF Research Explores the 5% Payout Rate for Private Foundations
What Does the Data Tell Us?
The COVID-19 pandemic and national reckoning for racial justice have laid bare both new challenges and existing inequities that remain rooted in our systems and policies. In Michigan and across the country we’re seeing philanthropy continue to lead through these crises, joining nonprofits and other partners in working with communities to meet pressing needs, and at the same time, pave a reimagined path forward that looks ahead to our resilience and opportunities for our collective reform.
Among our field there have been calls to take this time to reexamine our practices and policies, recognizing the many challenges we see all around us, and the power and privilege philanthropy holds. Nationally, this has included renewed conversations among policymakers, and some calls from peers in the field, to raise the 5% payout rate for private foundations.
Grounded in data and research, we have long supported the current payout rate as reflected in our own Government Relations Goals. As a leadership organization that puts equity at the center and is committed to creating space for reflective conversation, we continue to ask the question: Have the market forces and growth in philanthropy—and for CMF, growth in Michigan philanthropy specifically—changed enough to warrant an increase in the 5% rule for private foundations?
CMF partnered with the Dorothy A. Johnson Center for Philanthropy and Plante Moran Financial Advisors to deepen and expand past research exploring the 5% payout rate to help answer this question, building on the learnings of previous studies we’ve commissioned over the past 20 years.
We are pleased to share the findings of this new, illuminating study – An Evaluation of Private Foundation Model Portfolios, Investment Returns, & Payout Rates – capturing what we believe is the most comprehensive snapshot of payout data available to foundations to date. We value this research as a tool for private foundations in Michigan and across the sector.
Some of the key findings include:
Private foundations frequently treat the 5% payout as a floor, not a ceiling. Half of Michigan’s private foundations paid out 6% or more of their corpus during 2018, as did a similar proportion of foundations nationally.
Increasing payout rates in the short term is the equivalent of decreasing grants for 17 years in favor of increasing grants for the first 3 years.
We encourage you to review the full findings and examine how this data comports or contrasts with your own organization’s policies and practices.
This study is the first in our new research series. In 2021 we will share findings related to the payout rates of community foundations and donor advised funds (DAFs).
If you have questions specific to the report please connect with CMF Knowledge Insights Expert in Residence Brittany Kienker, Ph.D. For related policy questions, we encourage you to connect with Regina Bell, director, government relations and public policy.
CMF members, we invite you to join us on January 14 and engage in open dialogue around how this data comports or contrasts with your own organization’s policies and practices, and how you may be using the data to forecast your own immediate and long-term goals for your investment returns, impact investing strategies, grantmaking goals and immediate needs your foundation seeks to address.