Author: Amy Paterson

Executive Summary

• Private foundations are sustaining payout levels well above the 5% minimum, supported by recent strong market performance.
• However, forward-looking return expectations are moderating, while multi-year grant commitments remain elevated.
• This is forcing foundations to reassess the strategic questions around short-term grantmaking and long-term sustainability of the foundation assets.
• TIFF analysis highlights long-term purchasing power erosion, not short-term liquidity, is the major risk for foundations.
• Foundations should periodically reassess and scenario test portfolio return expectations and grantmaking plans and flexibility to ensure sustained long-term mission capacity.

The Current Environment: Capacity Has Expanded, But So Have Commitments

Recent data from the 2025 Report on Private Philanthropy indicates that private foundations paid out approximately 7.1% of assets in 2024, well above the statutory 5% minimum requirement.1 At the same time, many foundations continue to emphasize multi-year, targeted grant commitments that extend support and obligations several years forward.

This environment has been shaped by several years of strong public market returns. Asset growth has supported elevated grantmaking and, in many cases, longer-dated commitments. Boards appropriately leaned into mission impact.

However, forward-looking capital market assumptions are more measured than the realized returns of the recent past. For boards and investment committees, the key question is not whether foundations can afford elevated spending today, but whether it is sustainable across a full market cycle.

Structural Trade-Off: Real Return vs. Spending

At its core, sustainability is a function of basic arithmetic. For a foundation to preserve its purchasing power over time, the portfolio’s long-term return must cover both the spending rate and inflation. However, if spending plus inflation exceeds the portfolio’s long-term return, purchasing power will erode over time.

This erosion can be difficult to detect in certain environments, particularly during steady or rising markets. In these conditions, the impact may appear modest. Portfolios may continue to grow in nominal terms, while their real value (e.g., adjusted for inflation), and therefore future grantmaking power, slowly declines.

The dynamic becomes more consequential when market declines coincide with elevated spending and fixed multi-year commitments.

The most challenging scenario occurs during a material drawdown, when several forces compound at once:

• Asset values decline.
• Grant commitments remain fixed in dollars.
• The effective payout rate rises as a percentage of assets.
• The capital available to compound in recovery is permanently reduced.

Liquidity Isn’t the Risk—Erosion Is

Modeling representative private foundation portfolios under base case and stress scenarios shows a consistent pattern. Even when obligations remain fully fundable, maintaining elevated spending through a significant market decline materially accelerates long-term real erosion.2

The risk facing many foundations is not an immediate liquidity shortfall. It is the amplified long-term cost of maintaining fixed withdrawals during periods when assets are temporarily impaired.

Key Considerations for Boards and Investment Committees

As foundations navigate a normalizing return environment, several considerations may warrant renewed attention to ensure that mission ambition and portfolio capacity remain aligned across a full cycle:

• Alignment between spending and forward-looking return assumptions
  Is the current payout level supported by long-term real return expectations rather than recent experience?
• Interaction between commitments and portfolio behavior
  How would a material market decline affect effective withdrawal rates given existing multi-year obligations?
• Flexibility within grantmaking
  What portion of spending is structurally committed versus discretionary, and how clearly is that flexibility defined?
• Reassessment framework
  Have conditions been articulated in advance under which spending or portfolio risk tolerance would be revisited?

Conclusion

Private foundations have benefited from a period of strong market support. As conditions normalize, elevated payout levels may remain appropriate, but their durability depends on deliberate alignment with long-term real return capacity.

The most resilient institutions are not those insulated from volatility. They are those that define in advance how spending, commitments, and portfolio risk tolerance interact so that decisions made during periods of stress are disciplined rather than reactive, and long-term impact is not unintentionally impaired.

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.

In FY25, the NBOA-Commonfund Benchmarks Study of Independent Schools reported annual returns of 11.5% across the peer set, bringing 10-year average returns to 7.7%. Independent schools remain concerned about budget headwinds from both inflation and enrollment pressure, despite strong market performance helping to increase operating budget support from the endowment and a moderate increase in annual gift budget support. Donor trends appear to be shifting, with major gifts becoming increasingly concentrated among a smaller group of donors. OCIO usage continues to increase, in part as a solution to budgetary pressures and increasing portfolio complexity.

Key themes from the report include:

• Strong Investment Performance: Investment performance remained strong in FY25, with an average annual return of 11.5%, modestly below FY24’s 12.3% but still well above long-term returns for most institutions (average ten-year return is 7.7%). Size-based performance differences have reversed again, with larger endowments outperforming smaller endowments after smaller endowments outperforming FY23-24. Smaller endowments under $10M returned 10.9% in FY25, trailing the $10M–$50M and $50M+ cohorts at 11.6%. Over a three-year horizon, the smallest cohort outperformed, returning 12.7% versus 11.2% and 11.1% for the $10M–$50M and $50M cohorts, respectively. These performance shifts predominately reflect allocations of public vs. private equity, with larger endowments typically having larger allocations to private assets.
• Operating Budget Support from Endowments Increased while Spending Rates Remained Steady: Institutions are increasingly relying on endowments to support operating budgets (total average 7.1% in FY25 vs. 6.4% in FY23), even as total average stated spending rates have remained steady at 4.3%. This implies that the growth in operating budget support from the endowment is driven by strong investment performance rather than increased spending. This trend is most pronounced among the $50M+ cohort, where operating support from endowments rose from 7.8% in FY23 to 8.5% in FY25. While the short-term trends have increased, they remain below the 2000s when both spend rates and operating budget support from the endowment were higher.

NBOA Stated Spend Rate and % Operating Budget from Endowment (FY05-FY25)

• Increase in Annual Giving Budget Support: Operating support from annual giving has also moderately increased over the past three years (6.8% in FY25 vs. 6.5% in FY23), particularly in schools with the largest endowments. Similar to endowment support, the increase in annual giving likely reflects strong market performance, as donors tend to give more during periods of investment gains.
• Donor Trends Shifted: While overall gifts (annual giving or endowment) vary from year to year, there is a clear trend that a majority of gifts are coming from fewer donors. Historically, 80% of donations came from 20% of donors, whereas now roughly 90% of donations come from just 10% of donors. Institutions are also seeing a continued shift toward restricted gifts, as donors are more focused on the impact of their gift. Despite the increase in dollars, median gifts per student have remained relatively stable. Fundraising remains a top concern for schools.
• Increased OCIO Involvement: Use of OCIO providers by secondary schools continues to expand, regardless of endowment size. As independent schools face operating budget pressures and constrained resources, the investment landscape becomes increasingly complex with the operational needs of alternatives, regulatory changes, and increased market volatility. OCIO providers can provide access to constrained investment opportunities and diligent risk management, freeing up time for investment committees and business offices.
• Inflation and Enrollment Headwinds Persisted: Enrollment continues to be the top concern facing secondary schools, especially those with endowment assets under $10M. Demographic shifts are contributing to student population declines. However, enrollment declines disproportionately affect New England, New York, and New Jersey while the rest of the country experiences enrollment increases. Additionally, inflation remains a challenge, increasing operating costs and placing additional strain on budgets already more reliant on endowment and gift support.

The materials are being provided for informational purposes only and constitute neither an offer to sell nor a solicitation of an offer to buy securities. These materials also do not constitute an offer or advertisement of TIFF’s investment advisory services or investment, legal or tax advice. Opinions expressed herein are those of TIFF and are not a recommendation to buy or sell any securities.

These materials may contain forward-looking statements relating to future events. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” the negative of such terms or other comparable terminology. Although TIFF believes the expectations reflected in the forward-looking statements are reasonable, future results cannot be guaranteed.