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£55m endowment match fund for the arts may have launched ‘a decade too soon'

£55m endowment match fund for the arts may have launched ‘a decade too soon'

News (UK)

The £55m matched fund scheme announced by the DCMS to a packed Whitechapel Gallery this week (July 9th) that calls on private donors to help secure the future of the cultural sector by building endowments may be ‘too much too soon’ say sector leaders.

While welcoming the concept to build long-term financial sustainability, fundraisers and sector leaders have expressed concern that the DCMS strategy will over-extend smaller organisations’ fundraising capacity as they struggle to raise much needed income revenue in the light of a double whammy of recent cuts by the Arts Council England (ACE) and local authorities.

Theresa Lloyd, author of Cultural Giving and an independent advisor to many arts organisations,comments: “I have no doubt that the matching will be an incentive and could kick-start a process with serious long term potential for some. But for many if not all, donations in the shorter term will come from existing donors who may cannibalise part or all of their current revenue support in order to trigger the match. This may still be a good ‘deal’ for the organisation but risks putting additional pressure on their revenue fundraising when many are already facing the challenge of a reduction in Arts Council funding and challenging economic times.”

The fund, comprising £30m from DCMS, £10m from ACE and £15m from the Heritage Lottery Fund is aimed at encouraging philanthropists to match grants of between £500,000 and £5m to establish endowment funds for organisations. An independent advisory panel chaired by Michael Portillo will review bids from organisations.

But commentators say the scheme is likely to fail unless fundraising capacity becomes the priority for the next few years, and they have welcomed ACE’s £40m Catalyst Fund to build fundraising skills, launched at the end of June as part of the DCMS overarching £100m plan to boost philanthropy, of which the endowment fund is a part.

John Nicholls, managing partner of Arts Quarter, whose just published report Hidden Wealth explores the capacity of the sector to engage with individuals as donors, examines the extent to which these funds might promote individual giving. Nicholls says: “Our research indicates the endowment match fund could be a step too far for arts organisations and for donors, both in terms of intellectual capacities among those asking and indeed those giving. Many organisations are not used to asking individuals for support and many of those from whom support could be solicited simply do not at this stage have the quality of relationships with those organisations to comprehend the proposition. The just won’t get it.”

Nicholls says: “I would have liked to see the government focus on capacity building for the rest of this parliament and introduce the endowment fund if re-elected.”

It’s a view shared by Philip Spedding, of Arts and Business , who says: “Building endowments for the long term is a laudable aim but I think the scheme should be put on hold for five to 10 years and the money directed into building fundraising skills within the sector, promoting legacy giving and creating a more entrepreneurial culture within organisations.”

He feels, like many, the endowment scheme favours the national London based arts and culture organisations: “Endowments are a big guys’ game and the fund will only work for a handful of organisations.”

The artistic director of Kilburn's highly respected Tricycle theatre, Nicolas Kent, who on the day the endowment fund was launched stood down after 27 years as a direct result of arts cuts, goes a step further calling the scheme “ridiculous”.

It’s a funding plan that makes rich organisations richer and the poor ones poorer. At the lowest level regional organisations are going to have to raise 500k that will have to be matched by their donors. If they can achieve that, though most of the smaller ones won’t, then they will earn about £10,000 a year interest – how is that going to help regional organisations?,” asks Kent.

Nicholls agrees the return on endowments is likely to be “peanuts” in the short term. However the DCMS highlights the earning potential of endowments citing American institutions such as New York’s Metropolitan Museum of Art, which over 100 years has built up a £2bn endowment.

In his speech  launching the endowment challenge fund Hunt said: “I want our endowments century to start today. World class cultural organisations should have world class financial resilience.”

By raising an average of £2 from private sources for every £1 of public funding, the hope is the plan will unlock £110m from private support, possibly more.

Kent, whose political plays and culturally diverse work at Tricycle Theatre has earned much acclaim, is also concerned the aim to make philanthropic funding a greater part of the funding mix, threatens diversity and artistic freedom.

Currently public funding accounts for around 50% of arts income, earned income 35% and development income 15%.    

Kent says: “While I am not against philanthropy, the danger of philanthropic funding being a greater part of the mix for the arts is that it becomes much more safe and establishment.

Philanthropically funded productions cannot afford to take risks or fail – if they do they will lose those donors. A theatre that is half empty will not attract donors. The sea change in theatre that has seen the cultural diversity of Britain reflected on the stage would never have happened if it had been funded through philanthropy alone. Without public subsidy the diverse voices would not be heard.”

He says artistic freedom can also be compromised. “When I worked in America we would have audiences right through rehearsals and even at the Tricycle we have one or two donors who wish to sit in on rehearsals. Rehearsal is a time when the actors and the director are most vulnerable and it should be a safe space.”

 Kent says the best donors for the cultural sector are those “willing to champion creativity and risk-taking, who do not expect to have control over the product and who will support their organisations through thick and thin, but that’s a very difficult message to communicate.

Lloyd does not share Kent’s concerns over artistic freedom: “I do not think there is any real evidence of donor interference in the artistic independence of the organisations that they fund.  Even with the notional grail of one-third public funding, one-third earned income and one-third private philanthropy I do not think there is a risk. And look at Glyndebourne, which received almost no public funding. Well over 40% of its income came from fundraising and it maintains a very strong artistic reputation and no interference as far as I know.

Philanthropist Vernon Ellis, director of ENO and a member of the Philanthropy Review’s panel, says: “Shifting the mix of funding by a few percentage points is not in itself going to challenge artistic freedom. At ENO, though some donors chose to support one production rather than another, this is not an influence on what we programme.”

 Ellis cites an article on ENO on the front page of this week’s New York Times in which it said ENO’s aesthetic mirrors England’s geographic position: somewhere between the conservatism of American opera production and the truly out-there experimentalism of companies on the continent. The company has hit a happy medium. An evening there will stretch your conception of the opera at hand, but not to the breaking point”.  He says: “I do not see any signs of this changing any time soon.”

Whether donors will be able to respond to the challenge remains to be seen, but new research this week confirms donations are down and arts in particular are missing out.

Lloyd says: “Some philanthropists might respond to the challenge, but it is likely that they will be those who already support the arts – and indeed specific organisations.  People who have never supported the arts and culture are unlikely to do so just because of this. It is very unlikely that donors currently unknown to the organisation will embark on their giving with endowment support. It is a very sophisticated ask for people who know the organisation and have confidence in its longevity.”

Ellis believes the matching aspect of the fund is attractive to donors.but adds: "1:3 matching (for large organisations) is less attractive than 1:2 matching (for smaller organisations), which itself is less attractive than 1:1 matching but this is a way of making a limited sum go further.  I think that this will not be enough to make a significant difference to the building of real endowments.  So much money would need to be raised to generate appreciable returns, particularly in the current interest rate climate, though some donors may be interested in contributing to a long term endowment fund.  But Jeremy Hunt also emphasised that they had a wider vision beyond simple endowments."  

He adds: “I think that this does give an opportunity for imaginative organisations to use this scheme to help shift the dial from a subsidy mindset - how can we make up the funding gap this year? - to an investment mindset - how can investment and capital-like projects help effect longer-term transformations in capabilities, financial resilience and artistic excellence?.  If this could be done, it could be attractive to donors, who like to see long-term effects.   Of itself of course this may do no more than bring forward donations so there is just a timing difference but I do think that there is a chance to create vehicles which bring in new money.  University development funding has dramatically increased over the last decade, partly through the use of government matching.”

Lloyd also raises a the issue of legacies as a source of donations to endowment funds. “It is one of the reasons for a slow build up of funds. In the absence of lifetime legacies, with the irrevocable legal commitment associated with them, no charity can rely on the promise of a legacy; the donor may change their mind and you would be very unwise to allocate a match unless against a cast-iron commitment.”

 In response to the concerns raised the DCMS issued a statement to Philanthropy UK.

The government believes that over the long term, endowments can become a key element in the mixed funding model for the culture sector.  They will not be right for everyone; it should be for each body to assess their own needs and aspirations, including the balance between short-term fundraising and long-term sustainability.  We are not imposing endowments on anyone; organisations can apply for an endowment grant if they believe this model will work for them.  We have already received a number of expressions of interest in the new endowments fund. Dame Vivien Duffield and others have made clear their enthusiasm for endowments.

The reports by Alan Davey and Neil MacGregor outlined the challenges which would need to be addressed in order for endowments to be developed.  Alan Davey’s report also demonstrated that endowments can be successfully developed by smaller bodies – eg Spitalfields Music, Dulwich Picture Gallery – or by bodies outside London – eg Wordsworth Trust, Aldeburgh

This initiative should not be seen in isolation, but as part of our wider strategy for philanthropy.  We want to strengthen the fundraising capacity of the cultural sector as a whole, which other elements of the £100m programme will support.  The culture sector has demonstrated its desire for mentoring support, such as that offered by the recent Michael Kaiser masterclasses.  We would be concerned if fundraisers feel overstretched, but it is the responsibility of boards and trustees to ensure their development staff are properly supported and equipped to do their job.  Board members, trustees and chief executives should all play an active role in the fundraising process, whether for endowments or other activities.

"DCMS stands ready to discuss with anyone how best to nurture a stronger culture of giving to arts and cultural organisations in the UK.”

Further details of the both the Catalyst Arts Fund and the Endowment challenge fund are expected in September. 

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