Nonprofit Remix

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Foundations, Fundraising, Research

The Forbes 400 vs. Foundations

The Forbes 400 vs. Foundations

A couple of years ago, I pulled a couple of numbers from both Foundation Center and The Forbes 400, and compared them. Here’s what I wrote back then:

The assets of the 81,777 foundations in the U.S. total only 43% of the assets of the 400 richest people in the U.S.

The implication was quite clear — just 400 Americans have roughly 2½ times the wealth of all 80,000+ foundations in the U.S. Or written another way, each person on the Forbes list is worth the same as around 550 foundations on average.

But aside from being fodder for a Twitter-worthy infographic, I’m not sure what else we can draw from this. So I decided to pull some more data and see if there are any interesting trends.

The Forbes 400 started in 1982, and Foundation Center has been keeping data on foundation assets for much longer than that, so there’s plenty compare. If you want something sliced a particular way that I haven’t thought of, please let me know!

The Forbes 400 vs. Foundations

Forbes 400 vs Foundations

in millions

Since Forbes began collecting this data in 1982, the total net worth of the Forbes 400 has been higher than that of all of the foundations in the U.S. The closest they ever were in dollar terms was in 1982, when foundations were only $120 billion behind. There may be a point where these two lines converge, possibly during the recessions of 1979 or 1973, but since there wasn’t a Forbes 400 list then, it’s impossible to say without some new research.

There are a couple of other interesting things to note, which shouldn’t be surprising. The Forbes 400 seems a little more volatile, where the foundations seemed to be shocked less by the internet and housing bubbles. That could be because foundations have more conservative investing portfolios. In fact, setting both lines equal at 1982 and dropping in some portfolio benchmarks shows exactly that.

Foundation assets grow like a 50/50 US stocks and bonds portfolio

Forbes 400 vs Foundations

in millions

Being on the Forbes 400 list apparently allows you to beat the S&P 500 over a time-horizon of 30 years or so. And foundation assets appear to behave almost exactly like a portfolio comprised of 50% S&P 500 and 50% 1-Year Treasury bills.

It’s totally out of my area of expertise, but this concerns me a little… Does that look like the crest of another wave to you?

Forbes 400 vs Foundations

To put your mind at rest a little bit, the foundation data only goes through 2014, so we could call this a lagging indicator anyway.

Are the Forbes 400 outpacing foundations?

Forbes 400 vs. Foundations

In the other graphs, it appears that the Forbes 400 is outpacing foundations in asset growth. But that doesn’t seem to be the case. When you simply divide all the assets of the Forbes 400 by the assets of all foundations each year, you get this crooked smile shaped graph. Since about 1992, the Forbes 400 has about two times the assets of all U.S. foundations, with the exceptions of a couple of bubble spikes in 2000 & 2008.  In future years it will be interesting to see if that upward trend we see in 2013-14 continues, or if it drops back near 2x.

Differences in scale

At this point you might be wondering how any of this is relevant to anything else, especially because the Forbes 400 is (obviously) capped at 400 people, while the number of foundations in the U.S. grows each year.

Forbes 400 vs. Foundations

This graph shows the average wealth of a member of the Forbes 400 in terms of how many average foundations it takes to reach that amount. In other words, in 1982, each person on the list had the net worth of 195 foundations. In 2014, each person had the net worth of 574 foundations.

This is especially interesting in light of our complicated relationship with overhead. Every single foundation generates additional overhead, at a base rate of approximately $150,000 each year. That doesn’t include program staff, investment fees, or anything else that the foundation might spend. By creating more and more foundations, gross overhead naturally increases.

Smaller foundations are also less likely to support mega-projects, like eradicating malaria.

A fantastic investment

There is one area where America’s foundations are pulling ahead of the Forbes 400. Assume that the following are actual things you can invest in:

  1. An index that tracks the annual percentage increase in total net assets of the Forbes 400.
  2. An index that tracks the annual percentage increase in total giving by all U.S. foundations.

Forbes 400 vs Foundations

This is actually a feature of private foundations in the U.S., which are required to pay out 5% of their assets each year. Annually, that number fluctuates between 5% and nearly 8%, with an average over this particular time period of 6.13%. Which is a pretty good guaranteed annual return.

And if you decide to take any of this and make it a twitter-worthy infographic, please let me know!

Image: Detail from the cover of the September 13, 1982 issue of Forbes Magazine.

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