Star Magnolia Capital
Sustainable Philanthropy: 100 Years of Philanthropy
Updated: Mar 29, 2020
100 Years of Philanthropy
For any human being, 100 years is not short. So is for sustainable philanthropy. It is, in fact, not easy to find philanthropic foundations with 100 years of history while maintaining their purchasing power. Among the largest 15 foundations in the United States we studied over the last summer, only three foundations have histories longer than 100 years (Kresge and Kellogg are getting close to 100 years old). In contrast to the high reputation, Rockefeller Foundation and Carnegie Corporations, two out of three centurial foundations, are not largest foundations today in size.
Unlike university endowments, most of private foundations do not receive substantial amount of donations after they are founded (Gates is one of the exception). And, more importantly, the main purpose of the philanthropic foundations is to spend money for philanthropic causes. Assuming there was no additional donation, Rockefeller and Carnegie grew 4.4% and 3.3% returns after spending ~5% of the capital every year, but where did the growth come from? It is difficult to find publicly available information for the entire history of both foundations, we believe the growth came mainly from their investment activities.
Centurial Philanthropy: Carnegie Corporation
In the 2009 annual report of Carnegie Corporation, we found this very intriguing chart and table titled “Purchasing Power Has Materially Increased During the Past 50 Years” and “Historical Returns, Spending and Market Value ($MM)”. There aren’t many examples of track records for portfolios continuously managed over 50 years. According to the table, Carnegie Corporation generated 9.5% annualized return for the preceding 50 years with the starting assets of $261 mm. If they kept all money reinvested, Carnegie Corporation’s asset size would have been $24 billion compared to $2.4 billion at the end of September 2009.
Inflation was another challenge for the foundation. Over the 50 years, Carnegie’s asset size grew 4.6% after spending while inflation was 4.1%. This means that the foundation’s asset size only increased 0.5% p.a. after adjusted for inflation. The chart also shows that the blue line (Actual Market Value) was below the orange line (Inflation Adjusted 159 MV) for most of the time.
Carnegie was successfully escaped from the inflation karma in early 2000s after shifting their allocation from Traditional Asset to Alternative Assets.
To learn more about Carnegie Corporation’s portfolio management history since 2000s, you can read our white paper, An Endowment Approach for Sustainable Philanthropy.
Savior of Community: Kresge Foundation
“Giving away money is not an easy job. Money alone cannot build character or transform evil into good; it cannot restore the influence and vitality of the home; neither can it maintain the valleys and plains of peace. Spent alone, it might as well stay in the vaults… it cries for full partnership leaders of character and good will.” –Sebastian Kresge
Most of you are not familiar with the name of Kresge, but it is K of Kmart, which was originally established as S.S. Kresge Company in 1899 as a five and dime store in Memphis. It was more than 60 years before Sam Walton started Walmart in Bentonville, Arkansas. The recent history of Kmart was tumultuous (read Kmart on Wikipedia) and it was acquired by Sears in 2002 (ironically, Sears is now running into a problem). At its peak in 2000, Kmart operated 2,171 stores including 105 Super Kmart Center. Today, there are only 624 Kmart stores.
Nearly a century after the establishment of the foundation, both Kmart and City of Detroit went bankrupt, however, the Kresge Foundation is still standing strong. It was funded by Sebastian Kresge with $1.6 mm. Until his death in 1966, Sebastian contributed $60.5 mm, which today became $3.5 bn. Supporting Detroit’s deteriorating community is an important commitment for the Kresge Foundation. Without Kresge’s successful asset management track record, this important mission could have faced funding challenges.