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Graystone Consulting

March, 2010

NEW YORK, NY, March 15, 2010 – A joint survey conducted by Graystone Consulting, a business of Morgan Stanley Smith Barney, and the Association of Small Foundations (ASF) in February found that approximately half of the respondents among small and mid-sized foundations intend to make changes to their spending and grant making policies for 2010, particularly cutbacks in grant dollars awarded.

“This may have an unfortunate ripple effect on many non-profit organizations that rely on grants to fund their charitable and community-minded activities,” said Henry Kaplan, director of Graystone Consulting. “Most foundations are reluctant to curtail spending at this time, but recognize it may be expedient to do so as they recover from losses sustained in 2008 and early 2009.”

According to Timothy R. Walter, CEO of ASF, “The figures in our survey could have been much worse.  In essence, we still see foundations trying to cushion the market’s impact on charities.  The 5% spending floor influences a majority of foundations, but I think that many foundations went above that floor for 2008 and 2009; the pullback on a percentage basis in 2010 discovered in this survey does not surprise me. Overall, I believe that more dollars will be granted as endowments recover.”


Kaplan noted that cash balances, U.S. large cap equities and investment grade bonds, in that order, are the largest sources of funds used by respondents today to help meet grant obligations.


Survey results included:


·         61% of respondents do not intend to change their asset allocation. Those considering modifications are primarily focused on reductions in cash and small-cap U.S. stocks and increases in international and emerging market stocks.


·         20% of reporting foundations do not have an Investment Policy Statement and 18% do not have a rebalancing policy.  “In today’s markets, lack of an investment policy is like driving a car at high speeds on a very busy turnpike, while wearing a blindfold,” Kaplan observed.


·         49% of respondents ranked the federal deficit as the single largest issue currently influencing their thinking.  China as a holder of U.S. debt, TARP and AIG are receiving far less attention.


·         Only 14% of respondents cited portfolio liquidity as a pressing concern. “That number may appear surprisingly low, considering recent media attention on foundation liquidity problems,” Kaplan said. “Many small foundations may have largely disposed of this issue last year or simply have far less exposure to illiquid assets versus their larger brethren.”


·         78% of respondents indicated that the market volatility and retrenchment of 2008 and 2009 did not prevent them from implementing their rebalancing policy mandates.  Walter views this as encouraging, “It took guts to rebalance, but those who followed their policies probably captured better returns in 2009.”


Kaplan commented, “On a positive note, the majority of survey respondents saw an increase in net assets for 2009 and believe that 2010 will provide opportunities to make up lost capital.”



About Graystone Consulting

Graystone Consulting, a business of Morgan Stanley Smith Barney, provides a wide range of investment consulting advice to clients that include corporate retirement plans, foundations, endowments and other nonprofit organizations, insurance and health care entities, Taft Hartley plans and state and local governments. Investment advice is delivered using a disciplined investment process that includes asset / liability analysis, investment and spending policies, asset allocation recommendations, manager research and due diligence, rebalancing strategies and other portfolio optimization services.


About Morgan Stanley Smith Barney

Morgan Stanley Smith Barney, a global leader in wealth management, provides a range of services to individuals, businesses and institutions, including brokerage and investment advisory services, financial and wealth planning, credit and lending, cash management, annuities and insurance, retirement and trust services.


Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services.  The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 1,200 offices in 37 countries.  For further information about Morgan Stanley, please visit


About Association of Small Foundations (ASF)

Established in 1995, the Association of Small Foundations (ASF) is a membership organization of more than 3,100 foundations. ASF enhances the power of small foundation giving by providing the donors, trustees, and staff of member foundations with peer learning opportunities, targeted tools and resources, and a collective voice in and beyond the philanthropic community. ASF is not affiliated with Morgan Stanley Smith Barney.


© 2010 Morgan Stanley Smith Barney LLC.  Member SIPC.  Graystone Consulting is a business of Morgan Stanley Smith Barney.


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