When Endowments Soar, So Should Impact---the Rethinking of Payouts in Times of Market Growth
The last two years have been remarkably strong for the stock market, with the S&P 500 surging over 25% in 2024 alone. As a result, foundation and nonprofit endowments across the country are now at historic highs. According to The Chronicle of Philanthropy, foundation assets hit an estimated $1.68 trillion in early 2025—an all-time record.
This surge in asset values is good news, of course. Investment gains provide the fuel for philanthropic work and the long-term stability of mission-driven organizations. But alongside this financial windfall comes a pressing and uncomfortable reality: need is rising just as quickly—if not faster—in many communities.
Whether it’s food insecurity, housing affordability, access to education, or healthcare disparities, nonprofits on the ground are being asked to do more with less. Government aid programs remain inconsistent, donor support outside of foundations has plateaued in many sectors, and yet the cost of providing services continues to climb. In short, the delta between available resources and community need is widening—and foundations are uniquely positioned to help close that gap.
Historically, many foundations have adhered strictly to the IRS-mandated minimum 5% payout rate, designed to preserve capital and ensure perpetuity. This conservative approach has its merits: it creates sustainability, provides long-term planning confidence, and honors donor intent across generations. However, long-term thinking doesn’t preclude short-term responsiveness.
This moment—a time of exceptional market performance and widespread societal strain—presents an opportunity to rethink how payout decisions are made. The MacArthur Foundation, for example, recently increased its payout rate to 6% for 2025–2026. Others, like the Weissberg Foundation and Freedom Together Foundation, have gone even further, raising theirs to 10%.
These are not signs of fiscal irresponsibility—they are reflections of mission-aligned urgency. When investment returns are well above average, holding rigidly to a 5% payout risks undermining the very purpose of philanthropic capital: to make a difference.
No one is suggesting that endowments be recklessly drained. But temporary increases—especially in high-return years—can create meaningful, measurable community outcomes. The tools to manage risk and smooth spending over time are well known in investment circles. It’s not about abandoning prudence; it’s about balancing prudence with purpose.
Now is the time for foundation boards and financial leaders to revisit their assumptions. Are payout policies being driven solely by financial models—or are they equally informed by the communities they aim to serve? Can we embrace the flexibility to adjust spending upward in extraordinary years, knowing that markets ebb and flow?
The truth is, permanence alone is not impact. An endowment’s value lies not in its size, but in its utility. If now is not the time to leverage extraordinary investment gains for extraordinary community need, then when?
