When Markets Drop: Jittery Rich People, Frustrated Fundraisers

Have you ever watched your net worth drop by millions of dollars in a single day? Okay, me neither. But I’m betting it feels pretty crummy.

And if I got a call that same day—or same week—from somebody hoping to hit me up for a donation, I doubt I’d be eager to help them out.  

Big drops in the stock market mean different things for philanthropy. Foundation endowments take a hit, affecting grantmaking budgets—sometimes for years to come. But a plunging Dow can also freak out individual donors, causing them to pull back in their giving. Which makes life no fun for the fundraisers who cultivate these folks.

The head of a pass-through outfit that raises money to fight poverty once explained to me how the state of the stock market colored her days. When the market was up, the wealthy prospects she spoke with tended to be friendly and upbeat. When it was down, watch out: The other side of the phone line was filled with grumpy rich guys firing much tougher questions at her.

Yesterday, after a massive sell-off, the market came roaring back, and today is looking pretty good so far, too. But the Dow is still down some 1,000 points from where it was a month ago, a terrifying plunge of nearly 5 percent. Any number of very rich people have lost fortunes in recent weeks. Mark Zuckerberg, to cite one example of a philanthropist we often write about, is worth $2 billion less compared to July.

Or consider this report yesterday from the Wall Street Journal about four different hedge fund leaders who are all philanthropists we’ve covered extensively at IP:

Billionaire managers such as Leon Cooperman, Raymond Dalio and Daniel Loeb are deeply in the red this month, left flat-footed by the quick plunge for stocks world-wide. Mr. Cooperman’s Omega Advisors posted a 12% decline this month through Wednesday and 10% this year. Mr. Loeb’s Third Point LLC and William Ackman’s Pershing Square Capital Management are also down big, erasing their gains for the year.

The last name on that list, Bill Ackman, funds his foundation on a rolling basis, and amid recent good times, that outfit has been ramping up, with a big gift for immigrant college students, a new initiative on cancer research, and much more. Ackman and his wife, Karen, also make large regular gifts to groups like Human Rights Watch and the Innocence Project, and have lately made a major pledge to Harvard.

Related: Inside the Pershing Square Foundation: A “Catalytic” Funder on the Fast Track

Will this kind of money keep flowing amid what the WSJ called a bruising “meltdown” for hedge funds? Maybe, since the Ackmans are still a lot richer today than they were a few years ago, and are deeply committed to philanthropy. But I wouldn’t be surprised to see some retrenchment by the couple—which, in turn, could affect the nonprofits they support.

Remember, also, that while stock market crashes like this one tend to downsize lots of portfolios across the board, there are typically some wealthy people who get truly wiped out because they were overleveraged or otherwise killed by bad timing. If your nonprofit or college is relying heavily on one of these former "masters of the universe," best of luck.

Earlier this month, before the market’s nosedive, I spoke with David Saltzman, the executive director of the Robin Hood Foundation, the New York anti-poverty group that raises much of its money from donors in finance. He described the best of times at Robin Hood, with grantmaking set to hit $150 million this year.

I bet the mood is different today at that organization, which has some two dozen people in its development office. Quite apart from losses, turmoil in the stock market means that would-be donors are deeply distracted—working to limit their losses and reassure investors. Making time for calls with fundraisers is probably the last thing on their to-do list.

Now, given the overall strength of the U.S. economy, maybe the market will rebound, moving even higher in the next year, and these grim August days will seem like ancient history.

But I doubt that—at least the part about this crash being easily forgotten. Any wealthy person who’s lived through the past 15 years knows that this is a crazily volatile era, when unseen threats to their piles of money lurk everywhere—whether in an inflated Chinese housing market or chicanery in a “shadow banking system” addicted to risk.

And, given that volatility, there are no sure bets as to how much money you’ll have down the line—and thus how much you can afford to give away.

Yes, in general, the rich have kept getting richer, bouncing back even after the Big One of 2008. But as I said, there are always some wealthy people who really do get wiped out because of a confluence of factors they didn’t foresee. How sure can anyone be these days that their fortune is safe?

Last year, I puzzled through the question of why super-rich people don’t give away more money, especially those who believe in philanthropy and are getting along in years. One of the reasons I cited was that it’s just “scary to part with money,” when a storm could come along and make you much poorer someday. The last few weeks has been a reminder of that and, no doubt, will reinforce the tendency of the wealthy to hold on to as much of their money as they can to hedge against future misfortune.

Is that tight-fistedness really so rational for people who have more money than they could spend in multiple lifetimes? Nope. Still, it’s kind of understandable.

Where does all this leave fundraisers? Well, I’m sure some consultant could pony up a sophisticated strategy to deal with these dynamics. But the obvious takeaway that occurs to me is that fundraisers should make hay while the sun is shining, and when the storms come, just keep their fingers crossed that the sun will be shining again one day very soon. After all, it usually does here in America—at least for the one percent.

Related: Nine Reasons Rich People Don't Give Away More Money