There are about 8,800 trusts and foundations in the UK, and they hand out £2.5bn of grants each year. According to the NCVO's UK Civil Society Almanac 2009, they spend more than the entire international aid sector, so the decline of the stock market is worrying news for the charities that benefit from their largesse.
Some trusts and foundations are already feeling the pinch. The Moffat Charitable Trust recently said it would not consider new applications and would rely on its reserves to fund existing projects. The trust, which supports 110 projects, invested heavily in the Royal Bank of Scotland, whose shares have plummeted by more than 90 per cent. The bank's woes have slashed the trust's funds from £50m to £500,000.
In February this year, the mightiest grant-maker of all, the Wellcome Trust, revealed that its asset base had fallen from £15.1bn to £13.1bn and it was cutting spending by £30m. In a statement, the trust said the economic conditions "presented an extremely challenging operating environment".
But considering the extent of the market turmoil, the fallout has so far been light. David Emerson, chief executive of the Association of Charitable Foundations, predicts it will stay this way - in the short term, at least. "We don't think there will be any massive cliff edge-type falls from established trusts this year, but they are concerned about 2010 and 2011, which they believe will be much tougher," says Emerson.
The cautious, long-term investment strategies of trusts are helping them survive the recession, he says. "High-return schemes such as those of (disgraced financier) Bernard Madoff or the Iceland banks are likely to be viewed with suspicion, and I would therefore be extremely surprised to find any significant foundations invested in them or any similar schemes," he says.
"Many of the endowed trusts are there for perpetuity, which means they look at the investment in terms of maintaining the capital and providing steady income to support grants over a much longer timescale than usual. It is all smoothed by this long-term approach that enables them to be more gradual."
To the sector as a whole, only a few trusts and foundations matter. The largest 500 account for 75 per cent of giving; the 10 biggest account for more than half of that. Many of these foundations calculate their level of giving on income from the past 12 quarters, so it takes time for any changes to filter through. Some of the leading grant-makers have been badly affected, particularly banking foundations dependent on the profits of their parent companies, but most have been insulated by their long-term approach and the size of their endowments.
Jackie Turpin, head of finance at the Joseph Rowntree Charitable Trust, which is giving £5.5m this year, says it "experienced a significant drop in the value of its endowment over the past few months, accentuated by the fact the trust is invested almost exclusively in equities".
She adds: "Our trustees take a long-term view of investment, so they have no immediate plans to change the trust's investment policy, though our fund managers have reassessed their investment model to reflect market conditions."
The Paul Hamlyn Foundation's endowment shrank by 8 per cent in 2008. "We understand that's at the lower end of losses by endowed organisations," says Robert Dufton, the foundation's director. "From March to June 2008, we decided to reduce our exposure in equities - now we are more defensively placed."
But many trusts and foundations are less willing to discuss their situations in detail. A spokesman for the Esmee Fairbairn Foundation said it was holding grant-making spend at current levels, but "it is too early to say what our longer-term plans will be".
The Tudor Trust says its trustees are still discussing the implications. And a Barrow Cadbury Trust spokeswoman said: "Susie Parsons, our interim chief executive, felt the trustees wouldn't find it appropriate for her to discuss the investments of the trust with a journalist."
The Olympic raid on lottery funds and the switch from grants to contracts means trusts and foundations are needed more than ever. "There is a perfect storm of bad stuff," says Ben Wittenberg, director of policy and research at the Directory of Social Change, which has an online database of trust funding.
The squeeze on grants is prompting some organisations to revise what they do. The Calouste Gulbenkian Foundation changed its strategy in January and, in a bid to make its work more effective, now supports only innovation. Grant-makers are changing, but how far and fast they go remains unclear.