Lessons from funders ‘spending down’

There are many roads to net zero (assets)

It’s tempting to assume that spend-down trusts emerge from a highly specific set of circumstances and a particular analysis of philanthropy, but this isn’t really true. The motivations for embarking on a spend-down journey are a real mixture of principles, purpose and practicalities.

There’s something for everyone in there, whether you’re thinking about the best way to achieve a defined mission or support a particular field; there’s a question about succession at Board or senior management level; or you’re increasingly uncomfortable about how your assets are saved and stewarded. 

Of course, some examples are deemed more newsworthy than others: London Funders member Lankelly Chase, for example, received mainstream media attention not just due to its financial firepower, but because of its powerful critique of philanthropy overall. But there are all sorts of other trusts beyond this threshold of public recognition, with different motivations: another London Funders member, The Albert Hunt Trust, is an interesting example of responding to unparalleled need in a field, and will be spending its entire endowment to coincide with its 50th anniversary. 

It’s the egg, not the chicken

‘Should we (continue to) exist or not’ is a big question, and perhaps quite a navel-gazey one at that – but it’s not always the one which people started out with. It’s more nuanced than that: spending down is the strategy through which a mission is brought to life, rather than the goal in itself.

Many are asking the fundamental question of whether their aims, values and principles are best served by a perpetuity model, and the funders in this learning group decided that the answer is a clear and simple ‘no’. They’ve reflected on their best offer to the world and their role in the funding ecosystem, and concluded that opening up the budget is the likeliest route to strategic success. There’s also a financial element at play: for some trusts, the best (or even only) way to make a transformational financial contribution to a particular organisation, mission or field is to contribute more funds sooner, even if that means a diminishing endowment and a shorter institutional life. 

Doors closing – or chequebooks opening?

One of the hardest things for the group was wanting to communicate the generosity and ambition of their spend-down strategy, whilst the main message people (especially existing grantees) were hearing was ‘we’re closing down’. I called this the ‘deluge mistaken for a drought’. Even the term ‘spend down’ frames the exercise in terms of what’s happening to the funder’s balance sheet rather than what’s going on in the work, where ‘spend up’ or spend in’ could strike a more optimistic tone.

Evidently, it touches a nerve: people were connecting with an underlying narrative about scarcity and competition in the charity sector, and seeing spend-down trusts as a symptom of this, rather than a potential solution (especially if they move to proactive and invite-only funding processes). It was also interesting to see people interpret what can be a long, adaptive process – 8-12 years was a common timeframe, with some going even longer – as a single, dramatic event. 

Enriching the ecosystem – or damaging it?

Within the community of practice, spending down has been full of positivity and possibility: more funding, more urgency, a keener sense of role and purpose, a refreshed and determined strategy, a fully committed approach. Participants felt that the spend-down decision had sharpened minds and unlocked significant energy, and that their grantmaking practice was improving along the way. 

However, we can’t gloss over the potential for significant destabilising effects on the ecosystems which foundations are a part of, and the disruption for grantees worried about being left behind in the funder’s dash to the sunset – even if foundations are trying to ‘do right’ by their existing partners. There are some scenarios where dealing with the fallout of such a decision would consume more time and resources than pursuing the strategy behind it, which would be tough for all concerned. 

But whilst I haven’t seen much sign of grantee networks clamouring for the closure of their funders, I’d argue that they’re much more positive about some of the ingredients which constitute a spend-down, including bigger, longer-term grants; more trusting relationships; higher risk appetite; and a focus on shared mission, stewardship and sustainability beyond the role or existence of the funder(s). These are all good things, but they’re certainly more expensive and intensive to deliver than short-term, project-based grantmaking. 

If we want money to flow more plentifully to grantees, communities and beneficiaries, that means foundations giving more of it up – and this means a looser hold on perpetuity. 

What’s London got to do with it?

The London Funders membership list certainly contains many grand old oaks of the philanthropic forest, with some of the deepest roots. Others have developed distinct roles, niches and responsibilities, including in specific boroughs. There are also a number of organisations for whom an endowment-based analysis doesn’t really apply, including local authorities, corporate foundations and even law firms. 

The questions which spendouts raises, however, are universal, and I think all funders benefit from reflecting on them: what are ‘our’ resources doing, and whose needs and interests are they serving? Are we committing everything we can to the role we’ve chosen? And, fundamentally: is the money really better off in here than it could be out there?

These are just a few of the insights and questions which have emerged from the community of practice so far. A summary factsheet of the work is online here, and a full record of our work together so far is available here. 

If you’re interested in any of these questions or would like to join the community, please get in touch with Oliver French (ojfrench@gmail.com / LinkedIn).