Foundations turn to bond market in response to rising need

As the pandemic’s misery continued last fall, foundation leaders like Robert Ross of the California Endowment discovered a way to pump hundreds of millions of dollars to nonprofits working to minimize the damage: The bond market.

With its $300 million bond offering in January, the California Endowment became the latest private foundation to issue debt to cover a surge in grant making. The endowment is one of nine grant makers that have issued a total of $3 billion in debt since June to cover increases in their grant making. First out of the gate were the Ford, Doris Duke and MacArthur foundations.

In addition to the California Endowment, the Bush, Kellogg, Mellon, and Rockefeller foundations and the UJA-Federation of New York are recent entries into the bond market.

Ross decided to follow their example because the pandemic and its impact on communities of color was so profound that making grants with a “business as usual” approach wouldn’t help much.

Without drawing down from its more than $3 billion corpus, the California Endowment now has hundreds of millions to spend on improving access to health care and supporting grassroots organizations led by people of color in California. The grant maker plans to give out the proceeds of the bond sale within two or three years and has 30 years to pay back the loan at a 2.49% interest rate.

Ross and the grant maker’s finance team are confident they can pay back the principal and interest and still invest its endowment prudently.

“The philanthropic sector now realizes we have another tool in the belt to strategically overspend,” he says. “This is an approach worth at least kicking the tires on and considering.”

It’s possible more foundations will explore issuing debt to increase grant making. The Skillman...