A Funder's Game Plan for Crisis and Beyond

00:00 - 00:27

Welcome to Inspired Investing. Before we start, I want to let you know about a special new microsite dedicated to COVID-19. It's filled with up to date information, as well as deeper insights into how we might prepare for our future after the crisis has passed. Our main focus will be COVID-19, but we will still provide you with all of our usual helpful tips and tools for better investment management. You can visit it at Bernstein.com/covid-19.

00:28 - 00:57

So we've all been at home these days following the path of COVID-19 and the largest economic stimulus package in history and an effort to mitigate some of the resulting fallout from this virus. The bill does include provisions to incentivize donors and to provide needed capital to nonprofit organizations. However, I think it's safe to say that it's going to take a lot more support and coordination to help flatten the curve of COVID-19 and all that comes with it, particularly for our most vulnerable populations.

00:57 - 01:24

Funders of all sizes, from the largest foundations to individual donors, are really struggling right now with how much of their resources to allocate and how during this crisis, particularly as we've slid into a bear market. We know right now that spending certain assets means locking in long-term financial losses. And that is scary. Like just about everything in philanthropy, this is complicated and there's no one solution. So we're going to dig deeper on this topic in this upcoming episode.

01:28 - 02:03

Hi, everyone, this is Clare Golla, Head of Endowment and Foundation Advisory Services at Bernstein, and this is Inspired Investing, where we inform and educate entities that strive to invest purposefully with and for a mission. Today, everyone, I am fortunate to have as our guest Henry Berman, CEO of Exponent Philanthropy. Exponent is the National Association for a critically important segment of the universe of philanthropy. Right. What some term as lean funders. We'll get into what that is in just a moment. But first of all, Henry, thank you so much for joining me.

02:03 - 02:12

I hope you are well these days. Clare, thanks for having me. My hands are freshly washed and delighted to chat. Excellent. Good to hear.

02:12 - 02:43

Before we dig in, I do want to just provide listeners with a quick background on Exponent and what we mean by this term, lean funders, and really how you fit into the broader community of philanthropy. Of course, Exponent Philanthropy is a membership association, or as I like to say, it's really a community of funders who choose to operate with minimal infrastructure. In your intro, I think you use the term lean funders, well, lean or small staff is really about operations, not assets.

02:43 - 03:00

So among our 1,900 or so members across the country, we have some with assets that are maybe at a million, a million and a half, and then we have some that are up to a billion, or slightly over. Even those ones with a billion are only operating with four or five people, minimal infrastructure.

03:01 - 03:23

The donors are making a conscious decision to put their money into philanthropy rather than infrastructure. So among those donors, we have certainly many private foundations. We have individuals who might be using a DAF, some form, excuse me, of a trust, perhaps a checkbook. Some are grant making public charities, some are community foundations.

03:23 - 03:28

So there's a big mix of people. And what we do for them, we like to put into three buckets.

03:28 - 04:01

We talk about we guide them. I purposely say guide rather than educate, which could be a good synonym in this situation. But I want you to imagine, Clare, you're out in the woods, spread six feet apart with a bunch of people taking a hike and you have a guide. And sometimes that guide is out in front showing you the way. Sometimes the guide is at the back of the pack, going, It's OK to go slower, or perhaps, no, you need to pick it up a little. And sometimes the guide is right in the middle of the pack, learning from you and with you. And so that's what we mean

04:01 - 04:30

when we talk about guiding people. We meet them where they are and we help them along their philanthropic journey. And that includes everything from webinars to multi day conferences, one day conferences or programs, online resources, sample documents with peer groups where members with similar interests get together to share and learn from one another. We have a Q&A service where members call up and say, help, I got a question, and we'll help them find that. So that's how we guide them.

04:30 - 04:31

We connect them.

04:31 - 05:03

Remember, these are all leanly staffed or small staffed. So they're really like sole practitioners. So this is their community. So we connect them to each other, we connect them to resources, and finally we champion their work. We're lifting up all the work our members do. They give out a tremendous amount of money across the country in literally every sort of area of funding you might imagine, and probably some you can't. So that's who we are in a quick nutshell. Yeah, that's great. We've really enjoyed at Bernstein being a part of your conferences every year.

05:03 - 05:13

And one of the things that I have really appreciated about Exponent is that sort of connectivity that you provide. It's really peer to peer learning. As you said, it's about meeting people where they're at.

05:13 - 05:43

And one thing that I've noted recently is all that you're doing to provide resources and really connect funders to each other during this crisis. Could you share a little bit about that? Sure, the crisis has certainly turned philanthropy inside out or upside down and provided a lot of opportunities for a lot of funders to really shine, which I'm really happy about. And what we've been doing with our community is we have a robust page on our website of COVID-19 resources.

05:43 - 06:14

Many of these are our own and others are from other good sources. This is not a time to be overly proprietary or whatnot. And so those other sources are ours as well, and include information about grant making, about legal and tax related issues in this kind of a situation, about collaboration. That's on our website. It's free and open to anybody. We've been having weekly live discussions where members are sharing what they're doing differently, what are the lessons they've learned by doing that,

06:14 - 06:21

what are the issues they've encountered. And again, that's open to anyone who wants to sign up. And then we post the recordings on that Web page.

06:21 - 06:50

So if you're not able to be with us on a Friday afternoon, you can take advantage of it. We're hearing lots of interesting things people are doing, we're certainly responding to our members, we're creating other programs. We've recently held a webinar on how do you make grants to individuals, given the legal implications of the fact that this is a national emergency and different things playing into it. So helping people do that and of course, we're constantly updating this with new resources as we find them. That's great.

06:50 - 07:22

Yeah, I was actually looking through some of your stuff this week. And one thing that I thought was just fantastic was a letter that you put out there to the funding community and you acknowledge that investment portfolios have taken a real hit. I mean, this is a really tough time for funders and fiduciaries to make some decisions about how to support grantee organizations in this climate. But you also have some really compelling arguments for why now, why now is the time to provide those resources. So maybe you could share a few of the high points of that letter.

07:22 - 07:47

Yeah, a few points come to mind, Clare. At one level, all of us who are in the funding community, and I should add, not only am I the CEO at Exponent, I'm also, and now for 17 years or so, been a co-trustee of a foundation. So I'm living the dream, but I'm facing the same issues with my co-trustee, we're facing a lot of these questions and dealing with things.

07:47 - 08:16

But one of them I think is fundamental, is to think about, are we philanthropists who have assets? In other words, are we driven by some altruistic desire to improve society, to improve people's lives, to make a difference in this world? Or are we investors with money who happen to be giving some away? And I'm not going to put a value judgment on one or the other and say one is better or worse, despite what I might think. But that, I think, is a really fundamental question that people have to face.

08:16 - 08:34

I'm not parsing words. It really is a way of looking at things. And in reality, I suspect for most of us, for most of your listeners, there's probably some of both. But I personally believe you really need to look in the mirror and think about what's really driving you and why and think about that.

08:34 - 09:03

Another thought is a lot of people have been looking back to 2008 when the markets obviously took some big tumbles. And I like to think about or point out that in 2008, that was a financial crisis that was essentially self-inflicted in the biggest sense, whereas right now in 2020, this is a reaction to a virus. So the virus came along, markets were strong, they were robust.

09:03 - 09:32

Sure, there were there were many people who were on the margins. I'm not making it sound like life was perfect, but I think there is a fundamental difference that when this virus is conquered, it will be a slow recovery. It won't be, everybody got shut down very quickly, it won't just suddenly be like it was. But I do believe that markets were strong and we'll head that way. You know, in 2008, even during the crisis, the economy kept moving and today it's close to standing still.

09:32 - 09:59

So in this letter to members that you referenced, I acknowledged shrinking portfolios, but I also pointed out that today is the proverbial rainy day. This is it. If you're ever going to spend your money, if you're ever going to spend more than you intended, if you're ever going to mentally accept losses in your corpus or whatnot, this is the time, because this is serious. I mean, that's an understatement.

09:59 - 10:26

And the other thing that's really important here is that this is something that impacts all of us. You may be somebody who supports, I don't know, let's say a great school education, but you go home at night and you pick up the best seller and you can still read. Or you support homelessness, but you go home to a warm bed. This is a time when we're all just as vulnerable as everybody else.

10:26 - 10:38

And I think we need to keep some perspective on that as we think about, are we really here to help other people? So, as I said, today is the rainy day. Yeah, I think... Thank you for for giving us the high points on that.

10:38 - 10:51

It's interesting because as you know, we work with clients that aren't necessarily concerned right now about am I going to be OK, am I going to survive financially, the questions really tend to be around, what does this all mean? Right.

10:51 - 11:25

How do I make my money meaningful? And this is a question I think, while people are in isolation and they have time to think within the confines of their own shelter in place environments. Right. What should I be doing? If not today, then when? How should I be thinking about spending this money? And I've had these conversations with folks with significant private foundations in terms of asset size to those folks that you were just describing that have significant wealth and happen to give some of it away. Right. And this conversation continues to come up and

11:25 - 11:50

I would agree, I think we've hit that rainy day for quite a few folks, so as you're convening groups and as you're listening to these conversations with foundations, what are some of the creative responses that you're hearing out there? Any bold responses or collaborations that you hear about? A lot. And it's really impressive. In no particular order,

11:50 - 12:23

I see foundations, funders making emergency grants. And here I'll use my, I'm going to say my foundation, the foundation where I'm a trustee, of one of our stories that we immediately started calling many of our grantees who deal in direct services with people, and the first phone calls were, could you use an extra five thousand dollars to help with cleaning supplies? Or maybe you have somebody who's out ill and you need to backfill or whatnot. And all it took was that that recipient to say yes.

12:23 - 12:27

And the check was in the mail. No paperwork, no big deal.

12:27 - 13:02

So reaching out, making those emergency grants, people have been making all of their existing grants, just turning them into a general operation grants so that if, I mean, Exponent Philanthropy as a public charity, we survive on grants. People have said, well, we have given you money for this particular program. But in light of all this, just consider it a Gen Op and use it however you need to. People have been making extensions on deadlines for when reports are due, eliminating red tape on the part of nonprofits. I've seen people who are extending grants for another year.

13:02 - 13:36

So today it's February, they say, or March or April, I guess, they're saying to their grantees, we're going to give you the same grant again next year so you can count on it and take that burden off of their shoulders, relaxing reporting requirements on the parts of nonprofits and then a lot of local funders collaborating and sharing information to avoid duplication so that they don't all, for instance, fund that same program because nobody talk to one another, but also to learn about where the biggest needs are.

13:37 - 14:06

And I think there's, I've also heard about cases where people are looking at perhaps nontraditional, at least in their world, places to fund. I'm thinking of one member who turned around and gave money to the local police department in a small town to buy protective gear for the officers who were out on the front lines and didn't have a chance to say, well, I'm just going to go sit at home and ride this storm out. So a lot of creative ideas. A lot of those I've learned have kept coming up in our Friday discussions with people and hearing what they were doing.

14:06 - 14:40

And it's it's pretty amazing. It's great. That's awesome. It's great to hear those stories. I'm a director on the board of a private foundation as well. And we actually have a meeting tomorrow to talk about what type of response we're providing. And we've been able to, after we contributed to one collaborative fund and one collaborative effort through the Chicago Community Trust, another opportunity came up for sort of the next year, the very, very grassroots organizations out there in the Chicago area that really have the most challenges in terms of IT infrastructure or lack thereof.

14:40 - 14:55

Right. Like they just are really struggling to keep the doors open and keep modes of communication going during this time. So it's interesting how additional needs are starting to come out and how different funders are responding as those needs come about.

14:55 - 15:21

Yeah, I mean, I it made me think, I know of one foundation that ended up purchasing Zoom accounts for all of their grantees who are now working remotely. And so it's like, yeah, here's a Zoom account. We've paid for it. Now you can use it and connect, not something you might normally think about. And that goes to the importance of communications with your grantees.

15:21 - 15:44

And obviously in the crisis it's important. But fundamentally, philanthropy is a relationship business. So hopefully you have those relationships before the crisis so that you can have those honest conversations and move forward. Absolutely, yeah. You would hope that organizations feel comfortable to be able to share with their funders what it is exactly that they do need during this time. Definitely. Exactly.

15:44 - 16:01

And speaking of which, as you know, Henry, we work at Bernstein on my team closely with both funders, but also the not-for-profit organizations out there, those that are fortunate enough to have investable assets. And right now, we're in a number of different conversations around strategic use of capital. Right.

16:02 - 16:35

Are there ways that you can postpone making distributions, for instance, from certain aspects of your, certain parts of your investment portfolio? Do you have access to credit or other capital? And that comes to the new, the CARES Act, right. That includes these provisions both to incentivize donors to a certain extent and also to provide capital for, low-interest loans essentially for nonprofit organizations. So we're getting all of this information and now the next question is, OK, how does it all work? How do we actually get this capital, right?

16:36 - 16:44

Do you know of any other industry leaders out there who are really at the forefront and who are stepping up to get the word out? So it's a two-part answer.

16:44 - 17:17

As foundations and funders are understanding this, they are talking to their nonprofits. Remember, you can be a philanthropist with more than just money, so bring your non-profit knowledge and information is really important. I spoke with somebody yesterday about, were foundations interested in perhaps helping underwrite some legal costs for their nonprofits to navigate this whole government funding.

17:17 - 17:39

The lawyers were saying we're going to do this at a pro bono rate, but at some point we've got to keep our doors open, too, so maybe the foundation would step in. So that's kind of an interesting thing. But in terms of straight up information, I would say that the number one place that I would send people, the number one place I go is the National Council of Nonprofits. I'm going to put in the full disclosure here. I am on their board.

17:39 - 17:53

Good. I'm glad to hear that. Just being very clear about that. But they have really fought hard on this recent legislation to include nonprofits, and they are a state association of nonprofits,

17:53 - 18:21

obviously. Another good spot, our COVID-19 page on our Web site links to some legal and accounting information and resources. We'll undoubtedly be reposting stuff from the National Council of Nonprofits. But they just have a tremendous website and a wealth of knowledge and a really important piece of this sector. That's great. Yeah, it's good to see that there's information out there. So hopefully this will be helpful to some of our listeners as well.

18:21 - 18:47

I can't help but wonder, and you and I have actually talked about this a little bit before, as I look at how we've fundamentally changed in over the course of two weeks, how we are doing business just in my day-to-day, right, at Bernstein, and just how all of us have fundamentally changed, you always wonder in this kind of a disruption how much will ultimately go back to business as usual and how much will really fundamentally become sort of the quote unquote, new normal.

18:47 - 19:07

And I'm curious to hear your thoughts. Looking back at prior crises like 2008, for example, were there fundamental changes that you observed, for instance, in the business of philanthropy, post crisis? And what do you think might happen today, looking ahead. Since we had our chat, Clare, I've really been thinking about this a lot.

19:07 - 19:41

Let me start with 2008, or actually in the years leading up to 2008. As you, as many of your listeners, investors will remember that there was several years there where it was hard not to make money. It really was. And I know as a foundation. We would give away five or six percent, and at the end of the year, we'd still have more money in our account than we began. And so it became easy to sort of be a little sloppy in grant making. Somebody needs money. Sure. OK.

19:41 - 20:10

Then 2008 came along and what I saw coming out of that were funders who are placing a greater focus on their mission and their purpose when they realized money was not as abundant. One of the toughest things as a funder, as you well know, is to say no to somebody. And I've often said, if we all gave away all of our money today, that would still be issues in society tomorrow. So it means that we all have to make choices.

20:11 - 20:36

The good news coming out of '08 was that people started to really focus on what it was they did. They cut away those things on the edges that were off mission. Not good for those people, obviously, but it meant that they were really focused on the impact they were having. And that helped a lot of organizations have greater impact. That has sustained itself from '08 up until this virus.

20:36 - 21:00

I still saw it happening and I fully expect it will happen on the other side. Now, on the other hand, I also started thinking about 9/11 and not so much from the investment perspective, but I very much recall seeing, remembering all of us pulling together as a nation. Neighbors were nicer to each other. I was living in Boston at the time. Drivers would let you go in front of them. Things that were shocking, just unheard of. Exactly.

21:01 - 21:23

But then over time, it sort of reverted back to the norm. And so what I'm hoping that, an upside, a silver lining in this virus where people have been doing all this great communications with their nonprofits, funding them in ways they haven't before, that the pendulum is going to swing and find a nice middle ground.

21:24 - 21:45

Foundations obviously need some information in order to fulfill their fiduciary responsibility and to be responsible donors, but maybe they don't have to be quite as tough on nonprofits. And I think nonprofits will hopefully learn that foundations are not all bad if they have money to give away and they have to be smart about it.

21:45 - 22:11

So I'm hoping that that is going to be one of the big outcomes of this. And that maybe reverts a little bit to keeping in mind that it's giving over something else, which is perhaps accumulating. I do believe every generation historically generates its own new wealth. So if we give away a bunch of money, it's an argument, if we give it all away today, what will be there tomorrow? There'll be plenty tomorrow, there'll be,

22:11 - 22:40

Nobody had a thought in the 80s about Internet or tech millionaires and billionaires. If you go back to the beginning of the last century, probably nobody thought about a Standard Oil or other great generators of wealth. So absolutely, after this, it could be toilet paper barons. Exactly. Who knows? Yeah, you never know what one of these disruptions will bring. It's something that is a curiosity to me.

22:40 - 23:14

And as there was this whole trend towards, I would say, as you just described, foundations sort of reassessing their grant guidelines and becoming very much more specific, along with that grew, the sort of the, it was the genesis of donor advised funds becoming much more popular as well. And I see them, the rationale in many cases with folks that we work with is that they have a private foundation and they have a stated mission and they really ramped up their guidelines and became much more focused on, well, private foundations is a bit of a misnomer because everyone can look up what you're actually giving to.

23:14 - 23:20

Right. And then they would open up donor advised funds to do the off mission stuff. Right.

23:20 - 23:49

The one off asks that you continue to get from friends and family and neighbors or whoever. It is an interesting thing when you think about trends in philanthropy, how that leads to the creation of other types of vehicles to serve those needs and those opportunities. I'm working on a paper now that we're going to put out. Well, it was going to come out probably this month, maybe a little bit delayed, but talking about donor advised funds and foundations and many people have made that a binary choice.

23:49 - 24:11

And I think there's a place for both on your toolkit. Absolutely. And so I can think of some absolutely wonderful ways a foundation should use a donor advised fund. And I can think of some absolutely horrendous ways that some do that I would, border, I would say is philanthropic malpractice.

24:11 - 24:27

Legal but malpractice. Like everything, there's, even a pancake has two sides. So there's pieces of both. That's good! I didn't know that. I'll have to have you come back when you, when you release the paper. I'd be happy to.

24:27 - 24:28

Thank you.

24:28 - 25:00

So one last question about things that are trends and maybe shifts in the environment. Of course, we're always looking at the portfolio, investment portfolio. And for so many years there's been so much talk across philanthropy and the nonprofit sector around responsible investing in aligning your investments with your mission. And we'd started to see a bit of a trend in terms of an increase in adoption of purpose-driven portfolios or a mission aligned investing or whatever folks want to call it, right, prior to this crisis.

25:00 - 25:05

Do you think that this will, I've heard different comments about this. Oh, forget it.

25:05 - 25:17

People aren't going to focus on it anymore with this crisis and others saying, well, money's a little more scarce now. Maybe people will want to really get more impact from those more scarce dollars. What are your thoughts on that?

25:18 - 25:49

Well, we, too, have seen a trend in that area and for many years, any program, any publication, any piece of information in whatever form we put out about mission investing or impact investing, it's a topic with a million names, whatever we want to call it, whatever we put out, they would be oversubscribed. We turn people away at the door of the conference. Downloads would fly off the server, but not a lot of change.

25:49 - 26:02

We survey our members every year on operations and management of their foundations, looking at salaries, investments, a number of things. And one of the questions we're always talking about, were they involved in impact investing?

26:02 - 26:31

And for many years that was stuck at a rock solid, I believe, 13 percent. And a couple of years ago, it jumped up to 18. And I thought, oh, is this just a statistical anomaly or whatever? Then this past year, it was within half a percentage point of that. So within a statistical margin of error. So that's two years in a row, and that's significant to me, it wasn't just a blip. Over time,

26:31 - 26:50

Clare, we've seen a lot of people studying and wanting to learn about impact investing. I think there were people who for many years just assumed that impact investing meant, quote unquote, green investing or divestiture of fossil fuels. I was chatting with somebody a few years ago who said, well, we're big an impact investing.

26:50 - 27:06

And I said, oh, what do you fund? And they said, we've invested in a lot of ed tech startup companies because we believe that's the future. And boy, I wish right now with all the home schooling that's going on, I wish I had invested in Ed Tech. So people are starting to move.

27:06 - 27:31

And I think with, most importantly, their understanding is that they want to make their money do good while it's invested. And ideally, I suppose it's invested in the same kind of thing that they are granting in. But there are also people who might say, look, I grant in this area, there's not a lot of ways to invest specifically in that.

27:31 - 27:51

But I am going to invest in firms that are being environmentally friendly or are doing research on medications that might be helpful. Even if I don't fund medicine, my money is still doing good at the same time. So we're seeing that. And I certainly hope that continues because, gosh, we need it.

27:51 - 28:06

It's great. Yeah, I agree. Preaching to the choir. So I appreciate that. So, Henry, this has been fantastic. Thank you so much for taking time to connect with us today. It's just been great. I've been happy to do it.

28:06 - 28:31

And I would just tell all of your listeners that they can go to our website, which is just ExponentPhilanthropy.org, that will link them to this COVID-19 page, which has lots of information, lots of links. And they're all welcome to join us on Fridays for our live discussions, whatever they might learn, and will welcome them with open arms, because ultimately we're all in this to try and help each other in order to help society.

28:31 - 28:34

So thank you for letting me be here. Absolutely.

28:34 - 28:39

ExponentPhilanthropy.org. Great resource. Thanks, Henry.

28:39 - 28:45

Thank you. And thank you all for listening. This is an unsettling time for all of us, there's no doubt.

28:45 - 29:17

And we've really only scratched the surface in terms of the level of need and the requests that funders are going to be receiving in the midst of this pandemic. At Bernstein, we are here not only to support your financial well-being, but also to help you connect with peers and resources. So with that, we are going to continue to host podcasts and bring new ideas and best practices to you. And we do welcome your ideas for topics and guests. So don't miss out on these discussions. Subscribe to Inspired Investing on Apple Podcasts, Google Play, Spotify, or wherever you listen to podcasts.

29:17 - 29:48

If you'd like to learn more from Bernstein's Endowment and Foundation Advisory Services, please explore the link in this episode's description. Also, if you have any topics you'd like for us to cover, please e-mail us with your thoughts, questions, and feedback to insights@Bernstein.com and be sure to find us on Instagram or Twitter at BernsteinPWM. Bernstein: Making money meaningful for individuals, families, and foundations for over 50 years. Visit us at Bernstein.com.