The OAF Blog

Supporting Arts Organizations with Operating Funds

October 28, 2019


One of the most important benefits to arts organizations who established endowments with the Ontario Arts Foundation under the Arts Endowment Fund program (AEF) (and new organizations continue to) is the fact that endowment distributions are unrestricted. Unlike most grant funding, which is directed towards particular programs, AEF income can be used by an organization where they choose. This allows arts managers and their boards to decide each year if the income will be applied to core operating costs (rent, salaries, overhead), or a particular production, outreach initiative, or an investment in something new.


Operating Expenses

The Chronicle for Philanthropy recently published an article highlighting how five of the US’ wealthiest foundations have decided to focus efforts on grant makers to join them in offering funding that can be directed to operating expenses. In doing so, they hope to set an example to encourage other funders to ‘stigmatize’ in the eyes of donors and granters operating costs and help funders understand supporting an organization in this way helps them thrive and grow and make wise operating decisions. The article identified six ways, a funder can consider supporting operating costs of a not-for-profit:

  • Flexible enterprise support – overhead, allowing arts managers to decide how funding is to be used
  • Targeted growth support – directed at salaries, or building a new facility/physical need or invest in developing a new program
  • Outcomes funding – improving a mission ( arts ) in a specific way. The applicant for funding agrees to success/outcome measures and how much funding is needed to attain that goal
  • All in one project pricing - funding for anything project specific related – the distinction is that the grant recipient doesn’t have to specify if the money is used specifically for the project itself or overhead
  • Indirect cost rate-based project funding – funding to cover a initiative, plus a %age of project expenses such as overhead
  • Flexible program support - e.g. rent and other costs that go beyond a projects projected budget

All the approaches are intended to give an organization much needed flexibility to carry out their mission, potentially on a multi-year basis. This approach, which we endorse can be a valuable tool in the range of financial support options pursued by arts organizations, allowing to produce, explore and create.



Return on Investments - 2018 a Challenging Year for Foundations

September 04, 2019


A recent report from the U.S. based Council on Foundations on investment returns for community and private foundations in 2018 is an interesting read. We monitor these reports as one way to confirm how the Foundation investment performance compares to similar size foundations.

Challenging Year

The report articulates how 2018 was a challenging year. On average private foundations earned a negative -3.5% for one year and community foundations a negative -5.3%. The OAF achieved a better, but still negative one-year return of -1.9%. All of these results are reported net of all investment management costs.

One would caution that December 2018 was a particularly challenging year end, and markets recovered strongly in the first quarter of 2019. (The Foundation earned 8.1% for the year ending March, 2019.)

Endowment spending and annual disbursements averaged 4.6% for community foundations. Spending rates declined slightly across the sector in light of the lower returns.

Most organizations’ long-term reporting (10-year performance) no longer includes the 2008 market downturn. When looking at 10-year returns, community foundations with assets below $100 million generated annual returns of approx. 8%. The OAF 10-year return is similar at 8.2%.


Asset Allocation

One of the factors we monitor is the asset allocation strategy of comparable size foundations. During 2018, changes in asset mix were minimal for both private and community foundations. The most significant difference between the OAF and private and community foundations is the larger allocation to alternative strategies and a lower allocation to fixed income by the OAF.

The Foundation board has been lowering direct fixed income as a part of asset mix, as we feel that higher returns are available from equities on a long-term basis.


Conclusion

It is not our intention to follow the strategies of other foundations. The OAF charts its own strategy which focuses on the long-term and protects capital, ensuring annual returns that allow for disbursements to support the arts.

Nonetheless, it is helpful to monitor what is happening in the charitable sector as a “reality check” and assurance that our strategies are doing well.



Putting Wealth to Work - A good read

February 22, 2019

Putting Wealth to Work: Philanthropy for Today or Investing for Tomorrow?
by Joel L. Fleischman. PublicAffairs. New York, New York, 2017
ISBN: 9781610395335


The Philanthropist, a good Canadian journal on philanthropy, recently issued a book review on a book that is worth reading – Putting Wealth to Work: Philanthropy for Today or Investing for Tomorrow? by Joel Fleischmann.

The book provides a good perspective on the merits (and weaknesses) of perpetual endowment foundations and short term or ‘time limited / spend down’ foundations. It shares a balanced perspective on both approaches.

Perpetual Foundations
The author suggests that a benefit of perpetual foundations is that very large social issues and challenges cannot be effectively addressed within a single lifetime. Learning and applying philanthropy can grow and improve over generations.

Giving While Living
The contrast is with a younger generation perspective of ‘giving while living’ – seeking to accomplish goals within a short time frame. This is in part reflects significant growth of personal wealth and change in profile to ‘younger’ philanthropists, often emerging from the technology sector.

The book covers effectively key trends in philanthropy – from a US perspective, but the themes are applicable to Canada. It includes an interesting discussion on the role of foundations in taking positions and seeking to influence public policy decisions, something we are seeing here in Canada. Mr. Fleischmann describes well the desires and considerations of donors who wish to ‘give while living’ – foundations having a fixed life, along with the importance over time of longer perspective.


Ontario Arts Foundation
The Ontario Arts Foundation falls into the latter category, we aim to grow endowment assets to provide a long term, stable and increasing source of income for arts organizations. Over time, we continue to learn about endowment and the drivers/motivations of donors.

We recommend both the publication The Philanthropist and the book.



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