Instinctively, we all know that there is an important long-term relationship between investment performance and grant making, but the interplay between donations, gains, losses, asset levels, and expenditures can appear complex and confusing, but at the very core, there are just four numbers to follow as seen in the accompanying box.
Four Numbers to Follow
- Incoming Contributions
- Gifts, Grants, and Operating Expenses
- Investment Returns
The four numbers are the building blocks of evaluating any performance calculation. Consider the very simplest example of a savings account. By looking at your beginning of the year balance, the money you put in, the money you took out, and the interest you earned you could calculate your end of year balance, or working backward, look at your end of year balance and calculate your interest earned.
The concept is very straightforward, as is the fundamental equation, whether looking at a checking account, an investment account, or a foundation’s portfolio:
Note: Some foundations have other sources of revenue and/or may have significant non financial assets. FoundationMark may not estimate performance certain foundations..
Above we mentioned that there are four numbers to keep an eye on, which is only partly true. For all practical purposes, there is one number that drives all the rest – investment returns.
Let’s look at them 1 at a time.