Michael Alberg-Seberich

Growth seems to be one phenomenon the media still loves to report on. The German Association of Foundations publishes one of these amazing growth stories every year, and at the end of January it presented its latest foundation statistics. By the end of 2012 German officials had in their books 19,551 registered foundations. The number increased over the last year by 3.5 per cent. In 2012 the number grew by 4.3 per cent. These statistics are stunning if you consider that in 1990 Germany was the home of only approximately 10,000 foundations.

Some additional facts that may be of interest for the outside observer: German foundations, across the spectrum of various legal entities, have a combined endowment of around  €100 billion. They spent in 2012 around €17 billion for charitable causes. Out of these €17 billion, €5 billion were generated from foundations’ endowments.

A closer look shows that the overall growth rate is a tremendous success for an independent civil society, and documents the popularity of the foundation as a legal format within civil society. Interestingly though, 28.4 per cent of all foundations in Germany have an endowment of  €100,000 or less, while 44.7 per cent have an endowment between €100,000 and €1 million. This shows that small foundations are dominant in the sector.

This can be a signal of hope, because many of these foundations may still become financially sustainable in the future. However, it could also be a warning sign of the limits of growth in the sector. Does it really make sense to set up a foundation with a small endowment, if it is already clear at the time of starting out that the only way to grow is through outside resources?

Some trends – like giving while living, spend-down foundations, the limited returns on the financial markets, etc – may decrease the overall attractiveness of the ‘traditional’ foundation as an institution. It would be interesting to analyse in detail what types of donors are setting up foundations right now. As it turns out, a fair number of the new foundations in Germany are not donor- but fundraiser-driven. In addition there is a sizeable number of foundations that are actually initiated by the state as so-called ‘public’ foundations. Community foundations seem to be another driver of this growth. While none of these vehicles are new, the motivations for setting up these kinds of foundation might have grown. In contrast to this, many individuals and families with an entrepreneurial background are exploring more flexible giving vehicles and even exploring the impact investing sphere to do good.

These developments will change the philanthropic landscape in Germany in the future. Some of these trends can also be found in other Western countries. This is why a debate on the future of the foundation and legacy giving may be of interest. The foundation does serve its purpose in a civil society – especially in a country with such a strong social policy tradition as Germany – but it is changing more and more from a legacy institution of an individual or a family into an institution driven by collective and public interests. Foundations more and more become institutions that are income-driven, because they run a hospital or school, etc, or are driven by fundraising needs to support a certain cause. Again, all this is not new. For instance, some of the oldest German foundations have a vineyard as an endowment to run a hospital or seniors’ home. It is the rapid increase of these kinds of foundations that changes the nature of institution overall.  Maybe we need to redefine our expectations of growth for the foundation sector.

Michael Alberg-Seberich is managing partner at Active Philanthropy