Flexible funding – the evolution of trusts and foundations through Covid-19

Despite gloomy forecasts of trust and foundation depletion, funding from organisations such as Comic Relief might not only be holding up, but changing for the better. Rebecca Cooney reports

Comic Relief adapted its operating model and accelerated grant-making as a result of the pandemic. Photo by Nicky Johnston/Comic Relief via Getty Image
Comic Relief adapted its operating model and accelerated grant-making as a result of the pandemic. Photo by Nicky Johnston/Comic Relief via Getty Image

As the coronavirus crisis began to bite a year ago, and the charity sector was hit with the dawning realisation of how big the financial impact of the pandemic was going to be, trusts and foundations were among the first organisations to leap into action.

They launched emergency funds, and signed up en masse to the London Funders pledge to be more flexible and understanding about how grantees spent and accounted for money as charities wrestled with the crisis.

But amid the rush to claim much-needed emergency funding, behind closed doors, some were uneasy.

The outpouring of financial support was all very well – but, they warned, there was a risk that the organisations that fund so much of the sector’s work could find themselves depleted, particularly if the crisis dragged on for more than a few months.

With the UK recently passing its one-year milestone of the first lockdown, it’s clear that the crisis has lasted far longer than initially anticipated. The Association of Charitable Foundations estimates that trusts and foundations, including the National Lottery Community Fund and the National Lottery Heritage Fund, have given out more than a billion pounds since the crisis began.

When the grant-making charity Comic Relief published its accounts in February, it seemed that the predictions of depletion might be about to be realised.

The accounts revealed that the charity had recorded a deficit of about £27m in the year to the end of July 2020, due in part to accelerated grant-making as a result of the pandemic.

Comic Relief spent more than £46m on charitable activity in the UK in 2019/20 compared with £32m in the previous year. At the same time, its investment portfolio, which funds the charity’s operating costs, plunged from a £13.2m surplus in 2019 to a loss of more than £9m last year.

Despite this, and a restructure that is intended to reduce costs by £3.2m over the next two years, the charity said the deficit increase wasn’t a concern.

It has sold about 75 per cent of its liquid portfolio to help protect it during the pandemic and from any subsequent stock market crash, and Alex Botha, Comic Relief’s chief operating officer, told Third Sector the charity was aware
of the need to be “both reactive and proactive” in adapting its operating model.

So, far from being a warning sign of lean times ahead for funders, perhaps it could be an indicator that funders like Comic Relief are well-positioned to ride out the choppy waters of the pandemic and still offer support to charities that need it.

‘Money flowing out the system’

Certainly James Banks, chief executive of London Funders membership network, says he’s not as worried about trust and foundation depletion as he might have been.

“When you look at money flowing out of the system, you do think that’s a big difference from the amount you’d normally expect,” he says. “But when you look at money that hasn’t gone out of the system, it’s probably not so drastic – there’s actually quite a lot of balance there.”

Banks says that many funders put their usual open grant applications on hold when they switched to offering emergency pandemic funding. And much of the support available was for the short term – covering six months to one year – meaning organisations that normally offer two-, three- or five-year funding commitments will have had some extra cash to play with.

Carol Mack, the chief executive of the Association of Charitable Foundations, agrees, adding that there may also have been projects and funding rounds that couldn’t go ahead because of the lockdowns, so that money would have been repurposed for emergency funding.

But, she says: “Some of it was new money and some did increase their spending significantly – we know some that doubled their spend.”

The ACF is in the middle of surveying its members. Currently 40 per cent of respondents say the pandemic has had a negative impact on their finances, while 50 per cent say it hasn’t made a difference.

The financial impact of Covid-19 will vary depending on where the foundation gets its money. If it’s from a corporation, the grant-maker’s income will depend on how the company does over the next year, whereas endowed foundations will rely on investments – which could be vulnerable to a shrinking economy in the wake of the pandemic. But Mack says it is possible to separate the health of an endowment from the foundation’s spending.

“The beauty of the foundation model is that it allows you to fund counter-cyclically, because you can dig into your capital when times are tough and replenish it when times are good.”

The economy, and therefore foundations’ endowments, were, until the pandemic, looking fairly healthy. “They came into the crisis having had a decade of above-average returns, so they came into it in a good place,” Mack explains. Many foundations will have been able to use some of those returns as a cushion while increasing spending.

And, while the situation will vary for individual foundations, Mack says there is no reason to believe there will be a sudden, sector-wide drop off in the funding available.

“Foundations are very often there for the long term. They have a purpose, they will be deploying their resources to meet that mission, and that will be their overriding consideration,” she adds.

Building trust

Banks believes that trusts and foundations will be “around for a long time yet,” and that a positive outcome of the pandemic is a stronger dialogue between funders and grantees.

When London Funders launched its pledge to be more flexible about financial, outcome and reporting requirements in March 2020, more than 250 funders signed within three weeks and Banks found the response from charities “overwhelming”.

“So many people said to me: ‘We’ve not had funders speak to us like this before, we feel like you’re on our side,’” he says.

The publication of London Funders’ After the Storm report reflecting on the lessons of the pandemic in December, and the #FlexibleFunders campaign, which launched in February in partnership with the Institute for Voluntary Action Research, were both attempts to cement this simpler, more open approach into standard funding practice.

“We were trying to reassure the sector that funders were thinking long-term,” Banks says. “This wasn’t just ‘We’ll do a crisis response and go back to how things were before,’ or ‘We’ll do a crisis response and you’re on your own next year.’”

It has been so successful that talks are under way to apply the same approach in public sector funding. “Good things have happened this year because of that trust and flexibility,” Banks says.

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