Donor fund inflows track volatile market

Economic uncertainty and market volatility are taking donor-advised funds on a roller coaster ride.

The nation’s largest donor-advised fund — the Fidelity Charitable Gift Fund, which had $4.9 billion in assets May 31 — saw contributions decline 8% in the first quarter.

“I think [the decline] is [due] partly to the economy and human behavior,” said Sarah Libbey, the interim president of the fund, which is offered by Fidelity Investments of Boston.

“People may be tempering their contributions right now because they don’t know what their tax situation is going to be at the end of the year,” she said. “You combine that with uncertainty in the economy.”

Inflows to donor-advised funds tend to be erratic. On five occasions in the 16-year history of the Fidelity Charitable Gift Fund, inflows through midyear lagged the previous year’s contributions, yet the fund ended the year exceeding its goal, Ms. Libbey said. Last year, contributions to the fund totaled $1.85 billion.

“It’s too hard to predict what will happen going into the summer with the election. We usually get 70% of our contributions in the last two months of the year,” Ms. Libbey said, noting that she is seeing “more publicity about the generosity of Americans,” which makes her optimistic.

At the Schwab Charitable Fund, which has $2.2 billion in assets, contributions were down 10% in the first quarter. But the picture has brightened recently.

“In April and May, contributions were up 23%,” said Kim Wright-Violich, president of the fund, which is offered by The Charles Schwab Corp. of San Francisco.

“Many are giving appreciated assets to charities, and they want to take advantage of the charitable deduction and capital gains,” she said. “In the first quarter, stocks have been down significantly. People don’t want to contribute stock, because it’s not at their highest level. People also don’t need to make their charitable decisions until the end of the year.”

The fund received $833.9 million in contributions in fiscal 2007 and expects to see a 5% increase in contributions in fiscal 2008, which ends June 30, Ms. Wright-Violich said.

Like the Schwab fund, the $75 million T. Rowe Price Program for Charitable Giving also has seen a down-up pattern.

“Contributions were down 50% for the first quarter, followed by an upturn in April, when we saw a 25% increase,” said Ann Alston Boyce, president of the fund, offered by T. Rowe Price of Baltimore. “Then there was a slight downturn in May. It’s volatile.”

Last year, the fund received some unusually large contributions in the first quarter, Ms. Boyce said.

“The real issue will be if we continue to have volatile performance until the end of the year,” she said. “The donors know they can replenish the fund in a good year. There’s no question that when you are dealing with a donor-advised fund, the market and its performance will impact results.”

If the market remains down, the fund may receive the same number of gifts, but lower amounts, Ms. Boyce said.

“Donor-advised funds are suffering from a one-two punch related to the economy,” said Barry Glassman, senior vice president of Cassaday & Co. Inc. of McLean, Va., which manages $1.1 billion in assets. “People are less sure about their finances, which causes them to hesitate or donate less. As the stock market is down, there are a lot of people with concentrated positions in the financial sector, for example, that are not gifting stock this year.”

“I don’t know if things will turn around,” Mr. Glassman said. “We’re not going to have a lot of certainty, even with the new election. No matter which president comes into office, there will be a lot of challenges, and we don’t know how quickly they will act.”

There are fewer stocks today with large gains, Mr. Glassman said, and investors may not have capital gains to worry about.

At the $1.9 billion Vanguard Charitable Endowment Program, 2008 contributions “will be on par with 2007,” predicted James Barnes, chief relationship officer at the program. In fiscal 2007, the fund, offered by The Vanguard Group Inc. of Malvern, Pa., received $684 million in contributions. Through April, the program reported an 11% increase in contributions, compared with the comparable period a year earlier.

In a recent survey of 103 of the largest donor-advised funds, The Chronicle of Philanthropy reported that many funds saw a decline in contributions in the first quarter. The Fidelity, Schwab and Vanguard funds represent about 35% of assets in the donor-advised funds surveyed by the Chronicle.

“I doubt 2008 will be as good as last year unless the economy gets much better and people feel really confident about things,” said Stacy Palmer, editor of the Washington-based newspaper.

E-mail Sue Asci at [email protected].