Endowment spending vs perpetuity: should foundations spend down or exist forever?

The debate in brief

Endowed foundations hold assets — often billions — and distribute a portion of the income or capital each year to charitable causes. The standard practice is to spend around 4-5% of asset value annually, preserving the endowment in perpetuity. But a growing number of voices argue this is indefensible when the need for charitable funding is urgent and growing. If a foundation could deploy its capital now, when the problems it was created to address are at their most acute, why instead let it compound in investment portfolios for future generations who may face entirely different challenges?

Quick takeaways

The arguments

The case for spending down

The most powerful argument for spending down is moral urgency. Chuck Feeney, founder of Atlantic Philanthropies, put it directly: "I had one idea that never changed in my mind — that you should use your wealth to help people." Feeney gave away $8 billion during his lifetime, funding health systems in Vietnam and Ireland, university infrastructure across four continents, and the campaign that helped secure marriage equality in Ireland. Atlantic Philanthropies closed in 2020, having distributed its entire endowment over 38 years.

The logic is straightforward. If the problems a foundation exists to solve are present and severe, holding capital in reserve amounts to a decision that future need matters more than current suffering. This is not a neutral position. As Julius Rosenwald, the Sears, Roebuck philanthropist who spent down his fortune in the early twentieth century, argued: each generation should address its own problems rather than relying on the accumulated wealth of the past.

There is also an institutional argument. Foundations that exist in perpetuity tend to drift. Over decades, the original mission can become detached from the world it was designed to serve. Staff and governance structures accumulate. The foundation becomes an institution whose primary purpose is its own continuation. NPC has noted that the decision to exist forever is rarely interrogated with the same rigour foundations apply to their grantmaking — it is simply assumed.

A spend-down approach also forces discipline. Foundations with a finite horizon must make harder choices about where capital will have the greatest impact, rather than spreading modest grants across an indefinite timeline.

The case for perpetuity

The perpetuity model rests on a different moral claim: intergenerational equity. Future generations will face problems we cannot foresee — climate disruption, pandemic disease, technological displacement — and a well-managed endowment ensures resources will be available when those crises arrive. The Wellcome Trust, with an investment portfolio of approximately £37.6 billion as of September 2024, has committed to spending £16 billion on research between 2022 and 2032. That sustained, predictable funding stream — averaging over £1.6 billion a year — has been central to global scientific research infrastructure, including significant contributions to the COVID-19 response.

The Garfield Weston Foundation, with approximately £8.3 billion in assets, similarly argues that perpetuity allows it to remain a substantial, reliable funder across decades. Perpetual foundations can take long-term bets that time-limited funders cannot: multi-decade research programmes, sustained institutional support through multiple economic cycles, and patient capital that does not disappear when a deadline arrives.

There is also a pragmatic investment argument. A well-managed endowment earning real returns of 5-7% annually will, over time, distribute more in total than the same sum spent immediately. The Wellcome Trust's investment portfolio returned an annualised 11.7% over the decade to September 2025 (Wellcome Trust Annual Report 2024/25), substantially outpacing inflation. By preserving capital and spending from returns, perpetual foundations can, in theory, fund more work cumulatively than a single spend-down could achieve.

The uncomfortable middle

In practice, most UK foundations do neither. They hold endowments in perpetuity but spend at rates that barely exceed inflation, distributing 3-5% of assets while the corpus grows. ACF's Spending, Saving and Investing report (2024) found that the median spending rate among UK endowed foundations was approximately 4% of net assets. Some foundations have endowments that have grown significantly in real terms over decades while their grant budgets have remained flat or grown only modestly.

This raises the question that spend-down advocates find most damaging to the perpetuity case: if a foundation's endowment grows faster than its spending, it is accumulating wealth, not distributing it. The Charity Commission's CC19 guidance on charity reserves states that "holding reserves merely to generate income to meet current expenditure and without an adequate justification is unlikely to be reasonable." While CC19 applies primarily to operational charities rather than endowed foundations, the principle — that holding money requires justification — is the same.

The evidence

The most comprehensive UK data comes from ACF. Foundation grantmaking reached a record £8.24 billion in 2023-24, growing over 6% in real terms (ACF, Foundations in Focus 2025). Yet this growth was driven disproportionately by the largest foundations. The typical UK endowed foundation spends around 4% of net assets annually, a rate broadly consistent with the US "5% rule" established by the Tax Reform Act of 1969, adjusted for the UK's different regulatory framework.

An independent evaluation by Duke University's Center for Strategic Philanthropy found that Atlantic Philanthropies' spend-down model enabled larger, more concentrated grants than perpetual foundations of comparable size, and greater risk-taking because the institution had no long-term reputation to protect.

On the perpetuity side, the Nuffield Foundation has operated since 1943, funding research across education, justice, and welfare for over 80 years from an endowment of approximately £500 million — a track record no spend-down foundation could replicate.

IVAR's work on foundation practice has noted that the choice between perpetuity and spend-down is rarely presented to boards as a genuine strategic decision. Most foundations default to perpetuity because their governing documents assume it and because trustees, who serve fixed terms, have limited incentive to wind up the institution they oversee.

Current context

The debate has intensified in 2025-26 as charities face what NCVO has described as "the big squeeze" — rising costs, increased demand, and a constrained funding landscape. The employer National Insurance Contributions increase from April 2025 added an estimated £1.4 billion in costs across the sector, with no exemption for charities. Several major funders have recently exited the landscape: the Foyle Foundation completed its planned spend-down and closed in December 2025, and Lankelly Chase is redistributing all its assets and closing by 2028.

Meanwhile, the largest perpetual endowments continue to grow. The Wellcome Trust's investment portfolio returned 11.7% annualised over the decade to September 2025. The question of whether foundations holding tens of billions in assets should accelerate their spending during a period of acute sector strain is no longer theoretical.

The Charity Commission has not taken a formal position on optimal spending rates for endowed foundations, though CC19 guidance makes clear that trustees must be able to justify their reserves policy. ACF's 2024 report on spending and investment highlighted growing member interest in reviewing payout rates, but stopped short of recommending a sector-wide minimum.

Last updated: April 2026

What this means for charities

For charities that receive foundation funding, this debate shapes the funding landscape in direct ways. The closure of spend-down foundations like Foyle and Lankelly Chase removes significant funders from the ecosystem entirely, concentrating dependence on perpetual foundations that may or may not increase their payout rates to compensate.

Charities should understand the spending philosophy of their major funders. A perpetual foundation spending 4% of assets is making a specific choice about the balance between present and future need. That choice is legitimate, but it is a choice — and charities are entitled to advocate for higher spending rates when the sector is under acute financial pressure.

For charities with their own endowments or significant reserves, the same logic applies. CC19 requires trustees to justify holding reserves, and the Charity Commission expects reserves policies to be reviewed regularly. An endowment strategy that made sense in 2015 may not be appropriate in 2026. Trustees should be actively asking whether their reserves policy reflects current need or institutional inertia.

Common questions

What is the 4-5% spending rule?

A convention — not a legal requirement — under which endowed foundations distribute approximately 4-5% of net asset value each year as grants, reinvesting the remainder to preserve the endowment's real value. In the US, the Tax Reform Act of 1969 established a mandatory minimum payout of 5% of investment assets. The UK has no equivalent statutory requirement; spending rates are determined by trustees in line with their governing documents and CC19 guidance.

What happened with Atlantic Philanthropies?

Founded by Chuck Feeney in 1982, Atlantic distributed $8 billion over 38 years across health, education, ageing, and human rights in Ireland, the United States, Vietnam, South Africa, and Australia. Feeney transferred his entire duty-free retail fortune into the foundation with the intention of giving it all away during his lifetime. The foundation made its final grants in 2016 and closed in 2020.

Does UK charity law require foundations to exist forever?

No. Trustees can adopt a spend-down strategy, subject to their governing documents. Where the endowment is a permanent endowment under the terms of the original gift, Charity Commission approval is needed to release the restriction. The Charities Act 2022 made it easier for charities to spend permanent endowment by raising the threshold below which Commission consent is not required.

What is intergenerational equity in philanthropy?

Intergenerational equity is the principle that resources should be preserved so that future generations have access to comparable support. In the foundation context, it is the primary justification for perpetuity: the argument that spending all assets now privileges current beneficiaries at the expense of those who will need help in 20, 50, or 100 years. Critics counter that intergenerational equity assumes future need will resemble present need, and that discounting present suffering in favour of hypothetical future benefit is itself an inequitable choice.

How much do UK foundations hold in endowments?

The UK's largest endowed foundations hold substantial assets. The Wellcome Trust held approximately £39.9 billion as of September 2025 (Wellcome Trust Annual Report 2024/25). The Garfield Weston Foundation held approximately £8.3 billion. The Leverhulme Trust held approximately £4 billion. The Nuffield Foundation held approximately £500 million. Across the sector, ACF's 450 member foundations collectively hold assets of around £75 billion and distribute over £4.4 billion annually (ACF, Foundations in Focus 2025).

Should foundations increase spending during a crisis?

During COVID-19, many UK foundations temporarily increased their spending rates, with ACF reporting record distributions in 2020-21. Whether this should become the norm during sustained sector pressure is contested. Spend-down advocates argue crises are precisely when capital should be deployed. Perpetuity advocates caution that drawing down endowments during market volatility locks in losses and reduces future grantmaking capacity.

Key sources and further reading

• Foundations in Focus 2025 — Association of Charitable Foundations (ACF), 2025. Annual data on UK foundation grantmaking, reporting the record £8.24 billion distributed in 2023-24 and analysis of spending rates.

• Spending, Saving and Investing — Association of Charitable Foundations (ACF), 2024. Research on foundation payout rates, investment strategies, and the relationship between endowment growth and grant spending.

• CC19: Charity Reserves — Building Resilience — Charity Commission for England and Wales, 2016 (updated). Guidance on how charities should manage and justify their reserves, including the expectation that reserves policies are regularly reviewed.

• "Giving While Living: The Legacy of Atlantic Philanthropies" — Center for Strategic Philanthropy and Civil Society, Duke University, 2020. Independent evaluation of Atlantic Philanthropies' spend-down model and its impact across four continents.

• Wellcome Trust Annual Report and Financial Statements 2024/25 — Wellcome Trust, 2025. Includes investment portfolio valuation (£39.9 billion as of September 2025), investment performance data, and charitable expenditure.

• "The End of the Beginning" — NPC, various publications. Analysis of foundation lifecycle questions, including the strategic case for spend-down and the institutional incentives that favour perpetuity.

• The Road Ahead 2025 — NCVO, 2025. Annual sector outlook describing the financial pressures on UK charities and the implications for funder behaviour.

• Garfield Weston Foundation Annual Report 2023/24 — Garfield Weston Foundation, 2024. Includes asset valuation (approximately £8.3 billion as of April 2023) and grantmaking data for one of the UK's largest perpetual foundations.

• "Conor O'Clery: The Billionaire Who Wasn't" — PublicAffairs, 2007. Biography of Chuck Feeney and the story of Atlantic Philanthropies, the largest spend-down in philanthropic history.