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Will the Financial Crisis Affect Giving?

Resource type: News

Balkan Insight |

By David Labrador in Pristina

Foundations that support important programmes in the Balkans are suffering from the financial crisis in a way that makes their continued giving much more difficult.

Much of the money that helps to develop the Balkans comes from private foundations that are giving money they earn from investing their endowments. Endowments are usually invested in a mix of stocks, bonds and cash. But this year, stocks and bonds have lost so much of their value that, for many foundations, there are no profits, only losses.

Even mighty Harvard University, which has the largest endowment in the world, is suffering. Their endowment was worth 29 billion euros on June 30, but the portion invested in US stocks had already lost 12.7 per cent by then, even before the massive losses of October this year. Moody’s, the financial analysis firm, estimates the endowments of most US universities will lose about 30 per cent of their value by the end of the year.

Harvard’s president, Drew Faust, told the faculty and students that “endowment income has come to fund more than a third of the University’s annual operating budget” and went on to warn that “while we can hope that markets will improve, we need to be prepared to absorb unprecedented endowment losses and plan for a period of greater financial constraint.”

The situation is no better in Europe. Gerry Savole, chief executive of the European Foundation Centre, EFC, an umbrella group for foundations and corporate funders in Europe, reported recently that while individual situations vary in Europe, “the underlying concerns are the same: depreciating endowments; budget cutbacks; emergency asset management strategies; doing more with less”.

Things may not be as bad as they seem. Steven Lawrence, senior director of research at the Foundation Center, a US-based group similar to the EFC, recently said that “the impact of the current crisis on their [foundations] giving will be far less than current market conditions might suggest”.

Lawrence points to foundations’ giving during previous economic downturns, which rarely decreased even when the assets of foundations dropped. He also notes that most foundations base their budgets for giving on two-to-five year averages of their endowment’s value, rather than their current value. This is especially true of large foundations, like many of those active in the Balkans.

Indeed, many foundations insist they will not cut back on their giving. Ivan Vejvoda, executive director of the Balkan Trust for Democracy, a major regional donor, said that regarding the activities of the Balkan Trust for Democracy and its levels of grant-making, “there will be no change with respect to the previous years”.

Others are more circumspect.

Gara LaMarche, president of the Atlantic Philanthropies, wrote recently that while they would meet commitments previously made, they would “probably be somewhat more conservative for the coming period about big new commitments. For many foundations, though, there may be dramatically less new money to give out in the next few years”.

Foundation officers may be even more concerned privately than their public statements suggest.

Ferdinand Nikolla, executive director of the Forum for Civic Initiatives, a Kosovo NGO with a focus on the rule of law, reports that a large foundation recently told him that, because of the effect of the financial downturn on their endowment, they were scrapping all plans to work with new grantees in the coming year.

“It is a challenging time for the donor community, no doubt, but we are lucky to have donors who are committed to working with us in bad times as well as good times,” he said.

The key to foundations’ continued support of programmes in the Balkans may be how long the bad times last. Steven Lawrence, of the Foundation Center, bases his optimism on foundation giving during recent recessions in 1975, 1980, 1981-82, 1990-91 and 2001.

But none of those recessions lasted a full two years, whereas the downturn underway now may last much longer. If it does, foundations that base their giving on two, three or even four-year averages of their endowments’ assets may be forced to seriously cut back on giving in 2010. In that case, Balkan society will lose support that it still badly needs.

David Labrador is Balkan Insight contributing editor. Balkan Insight is BIRN`s online publication.

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During the past two years the BIRN Hub has engaged in extensive training activities, building teams of investigative journalists throughout the Balkans and training them in different aspects of their trade. The Hub produced Balkan Insight, an online publication distributed through a free newsletter and available on the website. During this period BIRN has published 109 issues of the Balkan Insight newsletter with over 600 analytical reports, in-depth analyses and investigations and over 500 news items from throughout the region covering major challenges of the political, social and economic transition.

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