The philanthropic world is bracing itself for a serious shake-up following losses of billions of dollars by charities and foundations who invested with Bernard Madoff.
The Jewish Funders Network, an alliance of 900 Jewish philanthropies, convened a meeting of members on Tuesday to work out strategies on how to respond to the crisis.
Several charities have shut down completely after losing their entire endowment; others are racing against the clock to raise funds to replace those lost in an alleged fraud by Mr Madoff and his firm. Their plight is exacerbated by the dire economic environment, in which it is difficult to raise money.
Many non-profit organisations that did not invest with Mr Madoff’s firm were recipients of funding from those who did, making for a ripple effect from the scandal.
Jeff Solomon, president of the Andrea and Charles Bronfman Philanthropies, said: “This is the ultimate triple header. Numerous generous high-end donors have lost their asset base; foundations have lost their investments, and the charities themselves have directly lost money ... The impact is unprecedented.
“There is no question there will be more closures.”
Mr Solomon and others in the philanthropy world said there would also be a big increase in mergers among non-profits in an attempt to avoid outright closure.
The Bronfman Philanthropies looked into investing in Madoff, but declined.
Barbara Picower, whose Picower Foundation will close immediately, said in a statement last Friday that the alleged act of fraud “has had a devastating impact on tens of thousands of lives as well as numerous philanthropic foundations and non-profit organisations.”
Her foundation’s entire endowment of close to $1bn was invested with Madoff. It had supported causes in medicine, education and Jewish culture, including giving $50m to the Massachusetts Institute of Technology for a centre on brain research.
Jewish philanthropy, which is a big part of the US non-profit world, has been hit especially hard, because Jewish individuals and non-profits invested heavily with Madoff, who was an active donor. Most Jewish philanthropies also fund non-Jewish causes.
The list of charities that have closed is growing daily. Apart from Picower, they include the Lappin Foundation, which funded Jewish cultural missions; the Chais Foundation, which gave to Jewish causes; and Jeht, a New York-based foundation which focused on juvenile justice and human rights.
Jeht, which was well known for its innovative programmes, closed after its sole donors – Jeanne and Kenneth Levy-Church – lost much of their money through Madoff. Among other things, Jeht paid for legal representation for juvenile offenders going to jail.
Some non-profits indicated they may close if they are unable to find substitute funding. The Philoctetes Center, which studies the imagination, said the foundation that funds it held large investments with Madoff, and those funds “literally vanished overnight”.
It put an appeal on its website, saying it could not continue without immediate donations. A spokesman said it had received some small donations, and was also applying to various foundations for money.
The Gift of Life bone marrow foundation is urgently seeking replacement investors after several pulled out because of losing money with Madoff. Mr Madoff’s own foundation donated to Gift of Life.
However, non-profit insiders said that it would be almost impossible for charities to find extra funding in the current economic environment.
Most foundations are struggling to meet existing commitments after losing money on their endowments this year, and seeing donations start to drop.
Among those that lost money but are planning to continue are Hadassah, which funds projects for Jewish girls and women, and lost $90m; Yeshiva University – where Mr Madoff was a board member – which lost $110m; the Elie Wiesel Foundation for Humanity, set up by the Nobel prize winner and Holocaust survivor, which lost almost all its assets of $15m; and Carl and Ruth Shapiro’s foundation, which lost more than 40 per cent of their foundation, previously worth $345m.
In spite of the disaster, Mr Solomon pointed out there was $300bn a year donated each year to philanthropic causes in the US, and the charities affected were only a small portion of the total.
“There were 20, 30, 40 charities that are affected, but that is a drop in the bucket,” he said.