The Bill and Melinda Gates Foundation will not be around forever. That has long been the refrain from the now-divorced couple. In fact, late last year, Bill announced that their $54-billion-plus philanthropy will spend down within 25 years.
There are some compelling reasons to believe the foundation will spend down. As cofounders of the Giving Pledge, one big part of the Gateses’ philanthropic legacy has been amping up the peer pressure on other uber-wealthy folks to publicly commit to give away their fortunes, preferably within their lifetimes. Backtracking on their own promise would undermine that reputation, at least in spirit.
Last year’s announcement that the foundation plans to expand its annual grantmaking to $9 billion a year by 2026 seemed like another step toward that commitment — a sign that the Gateses are serious about giving away one of the largest fortunes in history. By any reckoning, $9 billion is a lot of philanthropic coin. It’s as if the MacArthur Foundation gave away all its assets. Then magically did it again. Every year.
What does not make sense to me is the math. Neither now nor with the additional spending will the Gates Foundation be anywhere close to pumping out grants at the rate that would deplete the mountain of Bill Gates’ money that’s been promised to it. In fact, based on recent returns, that wealth could very well power giving at the new rate… forever.
The situation suggests something has to change. Either the foundation will have to increase its annual grantmaking by billions of dollars, or the Gateses will have to renege on one of their pledges. For the foundation to spend down in 25 years, or even within two decades of the deaths of its founders and Warren Buffett — as its governance documents still dictate — its annual budget would need to grow by about 50%, and maybe even peak at twice or more what it spends today. Alternatively, the foundation could spend down its current assets at the new level of $9 billion a year, but only if it does not receive Bill Gates’ oft-pledged fortune, let alone a share of Warren Buffett’s. And then there’s another possibility: that the foundation will opt for perpetuity after all.
While the Gates Foundation declined to comment on the record for this story, what’s clear is that there’s still dramatic change ahead for the largest foundation in the United States. The only uncertainty is which way things will go. But don’t trust me on this. Let me show you the math.
Adding up to perpetuity?
How much money are we talking about, anyway? The Gates philanthropies — the foundation and the trust that holds its assets — held about $53 billion as of 2021. But that’s not all the money they’ll reportedly be working with. Bill promised last year to give “virtually all” of his wealth to the foundation, pumping another $20 billion into the foundation and reiterating that pledge. As of today’s date, Forbes puts Gates’ net worth at around $105 billion, but fortunes this big tend to be volatile, especially in a rocky stock market. And in general, such estimates tend to be conservative. (Bloomberg currently puts Gates’ net worth at $117 billion).
In any case, there are a lot of reasons to expect Bill’s wealth — and that of the foundation — to continue ballooning over the long term. For one, Bill’s become a sort of venture capitalist ringleader of the clean tech revolution. As water and food scarcity rises, he’s one of the biggest private owners of farmland in the U.S. And that’s just one part of his vast investments outside philanthropy, from which he’s already seen huge gains. Forbes guesses Bill is tens of billions of dollars richer than he was in 2018, despite also transferring tens of billions to his foundation.
On top of all that, let’s not forget Warren Buffett’s “irrevocable” pledge of annual gifts of Berkshire Hathaway stock to the Gates Foundation during his lifetime. To date, he’s responsible for about half of what the foundation holds or has given away. While there’s no guarantee what he’ll do with his remaining $106 billion fortune, a recent Wall Street Journal report estimated the Oracle of Omaha had set aside about half of his wealth — $56 billion, at the time of the article — for the Gates Foundation. You could add Melinda French Gates’ $6 billion or so in post-divorce wealth to the total, but she’s reportedly got other plans.
Let’s keep this simple. Say Melinda spends her money elsewhere and Warren gives all of his to his kids’ philanthropies. Let’s say the Gates Foundation is destined to only get Bill Gates’ own fortune — bearing in mind that estimates of his net worth will jump around, but have tended to hover in the low hundred-billions even as he gives big chunks away to the foundation. Say its future assets — let’s use a round number — amounted to about $180 billion. Under that extremely conservative scenario, $9 billion in annual giving is exactly 5% of the foundation’s total future assets. In other words, it’s about the same percentage that philanthropies that are planning on perpetuity give away each year.
John Seitz, founder of philanthropic investment tracking firm FoundationMark, calculated that if the foundation had $180 billion to give away, and it averaged 6.1% returns on its endowment (the 10-year industry average based on FoundationMark’s GIV index), after 25 years of giving away $9 billion annually, it would be left with… $290 billion. In that scenario, grantmaking would actually have to rise substantially to stay at the minimum threshold of 5%.
“We’re talking about such enormous numbers it’s really hard to comprehend,” he said. “If Gates and Buffett want to fund $9 billion, they can do that out of cash flow. They don’t even need to touch their corpus.”
Granted, those scenarios do not include administration and operational expenses for the Gates’ globe-spanning outfit, which have run just over $1 billion a year recently, and could grow further as it gives out more grants. That might bring total spending to 6% or 7% of the foundation’s expected total.
Sounds relatively high. But the Gates Foundation Trust, which holds the assets, has averaged a return of 10.5% in the past five years, according to FoundationMark. Bill’s wealth is managed by the same family office, Cascade Asset Management, so it’s likely growing just as fast.
Where does that leave us? Under these scenarios — which, again, are highly conservative — the money held by or promised to the Gates Foundation will actually continue to grow even if it adopts this higher-than-ever spending rate of $9 billion a year.
What the decades ahead may hold
This is not to imply the Gateses are planning on perpetuity. But if they truly want to spend down, and in just 25 years, the foundation will have to start giving a lot more money out each year, very soon. Billions and billions more dollars each year.
How much, exactly? Seitz estimated the foundation would have to spend $14.2 billion a year to bring $180 billion down to zero over 25 years. Again, he assumed the lower industry average rate of investment return, not the higher rate the Gates Trust has enjoyed over the past five years.
If Buffett does pass his wealth to the foundation (which he’s said must be distributed in just 10 years after his death), or if Bill bets on the right clean tech unicorns, spending would need to rise even higher to move all that money out the door. In any scenario, spending is likely to peak at a much higher level and then trail off as the deadline nears and staff depart. Might we see the Gates Foundation one day spend $20 billion a year?
Such an unprecedented spend-down might take the Gates Foundation into new territory. The grantmaker could make some massive one-time investments. It might endow a new, world-class university (or a few dozen), or fund the World Health Organization for the rest of time. Such moves would be out of character for the foundation, but you never know.
What seems certain is that one of the world’s most influential private organizations is going to get much more powerful. Imagine, for a second, a Gates Foundation twice as big as it is today. The foundation’s already world-spanning influence basically doubled. If you think the Gates Foundation is an invaluable force for good, get ready for a whole lot more. If you think the Gates Foundation is already too powerful, just wait until it tries to disappear.
In explaining the new timeline, Bill (who recently turned 66 years old) told Forbes that the goal is to ramp up grantmaking while he and Melinda are still “around to help make sure it stays on track.” Under the original plan — which is still enshrined in its governing documents — the foundation must spend down within 20 years after the last member of the trio — Bill, Melinda and Buffett — dies. That could leave a future board tasked with a two-decade-long spending sprint that would make MacKenzie Scott look sluggish.
It is, at least to my mind, impossible that Bill, Melinda and their new board members have not discussed all of this. They may already have a spending plan in mind for the next few decades. But there’s been no public discussion of what that looks like.
There is one more alternative (at least). I bring it up as a possibility, not a probability. Critics of the Gates Foundation already abound, and that criticism has grown ever more heightened in recent years. Concerns about its influence are whispered by some grantees and shouted by certain academics. Perhaps the thinking is that the outcry would grow even louder if the foundation publicly intended to persist in perpetuity. Perhaps it is simply easier to say that the plan is to sunset.
A tipping point
Time for a little story. Many years ago, one of the world’s richest men launched a foundation that would become one of the world’s largest. The operation spanned around the globe, working on issues others ignored and attracting both passionate defenders as well as fierce criticism and blowback. The plan was to spend every cent he had earned.
But then he changed his mind. In 2005, that mega-donor, financier George Soros, announced at his 75th birthday party that his philanthropy, the Open Society Foundations, would actually stick around forever.
Whether it’s backing into it or planning on it, the Gates Foundation seems likely to arrive at a Soros-like tipping point sooner than later. As my colleague Philip Rojc wisely put it in a recent post, there’s already a “perceived indispensability” about the Gateses’ operation. The foundation is so big, its staff so entrenched in world affairs, its operations so interwoven with the global status quo, that when the time comes, it may seem impossible to some to do away with the institution. Should we perhaps expect that?