With financial and social investors variously advising greater caution or more risk-taking and growing demand creating welfare funding gaps, the Association of Charitable Foundations’ publication For Good And Not for Keeps provides some welcome perspectives. Spending wisely is not about the relative merits of short and long-term resources.
It involves what ‘investment’ means to a foundation, and the kinds of return it values.
Programme-related and social investments are a tiny proportion
of total foundation spending or investment. There is pressure to increase them on the grounds that the potential gain is far more than a mere financial return. To use the oft-quoted example, if you give a man a fish he will eat today, but if you invest in a boat, he might never go hungry.
The problem is the uncertainty of the likely social or financial return. What are the costs of failure? One is the loss to other types of needy beneficiaries who might lose out in the future as well as the present.
But another big risk is posed to the many other social investments foundations make. They are major investors in the UK’s health and bio-medical research and develop-ment, surpassing even the Medical Research Council.
Foundations devote a fifth of their £3bn-plus annual spend to educa-tion; almost another fifth goes to arts and culture. The majority of this spending represents major capital and other long-term investments in the country’s educational, scientific, economic and cultural capacity. Many of the direct beneficiaries are young people. In all these areas, foundations supplement what government does, generating a huge long-term benefit. Such investments largely depend on maintaining the financial value of foundation assets and returns on them.
Moreover, however great the needs today, they might be bigger tomorrow and the capacity to do good with fixed resources might be greater. Maintaining the value of assets is one form of future-proofing.
Given the uncertainties of financial returns, the unknowns of social returns and the immeasurable returns of investment in capacity, it is well-nigh impossible to calculate which investment strategy will achieve the greatest good for the greatest number of people.
The ACF report shows foundations they have choices. It suggests that doing as much good with all your assets for as long as you can is an alternative goal to simple asset preservation, but it seems to me that it’s anyone’s guess how to spend or invest for the best social gain.
Cathy Pharoah is professor of charity funding at Cass Business School