Grantmaking Foundations’ Asset Management, Payout Rates, and Longevity Under Changing Market Conditions: Results From a Monte Carlo Simulation Study

Zvika Afik, Simon Benninga, Hagai Katz

Research output: Contribution to journalArticlepeer-review

Abstract

Today’s uncertain financial markets could affect foundations’ future grantmaking capacities. We review foundations’ financial decision-making patterns and their effect on foundations’ assets, longevity goals, and payouts. Using three fictional foundations with different longevity goals and grantmaking preferences, we demonstrate the delicate balance and tight nexus between asset management strategies, payout rates, and longevity. To do so, we perform stochastic Monte Carlo simulations of multiple foundation life cycles, conducted under diverse capital market scenarios. The findings suggest that foundations should (a) readjust their return expectations to today’s less favorable markets; (b) reduce their reliance on past portfolios’ investment returns or unique “success stories” in making decisions; (c) appreciate the strong interdependence between portfolio-mix, payout rates, and longevity; (d) consider effects of their particular mission/problem area on these parameters; and (e) use tailored projection analyses that simulate various investment strategies, payouts rates, and longevity to meet their grantmaking goals.

Original languageEnglish
Pages (from-to)424-447
Number of pages24
JournalNonprofit and Voluntary Sector Quarterly
Volume49
Issue number2
DOIs
StatePublished - 1 Apr 2020

Keywords

  • Monte Carlo simulations
  • foundations-asset management
  • foundations-limited life
  • foundations-payout
  • grantmaking foundations

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)

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