Legal Commentary

According to news reports, the McCune Foundation, one of the nation?s largest grantmakers with more than $600 million in assets (as of 2006), by my guesstimate among the nation?s 150 largest foundations by asset size, has suffered severe losses attributable to the subprime mortgage mess. Evidently, the southwestern Pennsylvania philanthropy suffered a $150 million loss and has temporarily suspended its grantmaking activities for the next several months. Evidently, the Foundation owned a large stake in National City Corp. whose stock went from a trading high of $38.32 a share to a low of $6.56 because of the subprime mortgage crisis.

Although the Foundation is required by §4942 of the Internal Revenue Code to continue to payout 5% of its assets each year, the Foundation?s total asset based has declined by about 25% which means about $7-8 million fewer grant dollars reaching the charitable stream. The McCune Foundation concentrates its giving primarily in the Pittsburgh area but makes grants nationally. Upon review of the Foundation?s most recent annual report, it looks like some public charities most likely to be effected may include the Carnegie Library of Pittsburgh, Carnegie Mellon University, Allegheny General Hospital, Children's Institute, Goodwill Industries of Pittsburgh, Pittsburgh Opera, Pittsburgh Life Sciences Greenhouse, Pittsburgh Zoo & Aquarium, and Social Innovation Accelerator. Since I clerked in the ?Burgh, albeit nearly a decade ago, I remember many of these excellent organizations who will feel the sting.

Too bad McCune?s board didn?t follow the most basic lessons of Investing 101. I love the advice Yale?s investment guru, David Swenson, gives: ?Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals.? Perhaps Pittsburgh area charities should chip in to pull together $20 to buy McCune a copy of Swenson?s book.