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Nonprofit groups are reeling from losses on investments

Associated Press

MINNEAPOLIS -- Artists, researchers, community builders and others who rely on foundations for grants are a bit edgy about their future these days now that the shaky stock market has shrunk foundation assets.

The assets of some foundations have shrunk by hundreds of millions of dollars, forcing the groups to reduce the size or number of grants. Others are large enough and diverse enough to buffer the decline, but they worry about continued investment losses that could reduce the amounts they give to a rainbow of recipients.

"Organizations like ours, we are afraid," said Ying Vang, executive director of the Lao Family Community, a St. Paul group that provides social services. Foundation grants provide about 30 to 40 percent of the agency's budget, which already has seen some reductions, Vang said. "We don't know how we will survive here."

Michelle Hensley, artistic director of the 10,000 Things theater company, said about 75 percent of its $200,000 budget comes from 16 to 20 corporate and private foundations. Its largest benefactor, the McKnight Foundation, told her it can't increase its grant as much as expected.

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Some foundations, on the other hand, made timely shifts that have them thanking their investment advisers.

Several years ago, advisers to the University Foundation of the University of Minnesota suggested moving about 15 percent of the amount invested in U.S. stocks into Treasury bonds and other "defensive" investments, said Jerry Fischer, the foundation's chief executive. That included moving into hedge funds, which can offer protection if the market heads in the opposite direction than expected.

The shift came at a time when "the markets had that bubble feel," Fischer said.

"We don't play the market," he added, but the foundation "began preparing for a decade that would (produce) single-digit returns" rather than the 15-to 25-percent annual returns of the 1990s.

But for those groups squeezed tight by a loss of grant money, the future is unclear.

At least one foundation has laid off staff. Some foundations are reviewing how they invest their money, and many fret about a surge in requests for help as government agencies cope with deficits of their own.

The HRK Foundation, based in St. Paul, posted a notice on its Web site saying it will not take new requests for funds and "may find it necessary to reduce funding levels to current grantees." HRK is an umbrella for several small foundations that give money to causes ranging from education and the arts to environmental issues.

Kathleen Fluegel, a manager for HRK, said the foundation's grants were $5 million two years ago and $3.6 million last year. As for this year, she said "The best case scenario is that we would maintain last year's level." In the past year, the foundation's endowment has shrunk about one-third to about $38 million.

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The Jerome Foundation of St. Paul let go one of its seven employees to help trim $100,000 in administrative expense, said President Cindy Gehrig. Jerome also "will be trimming some grants and possibly concluding other grants" to cut its payout by about $200,000. Although Jerome's latest audit is not complete, its net assets in the 2001 fiscal year dropped 21 percent to $96.2 million.

Assets of the McKnight Foundation, the state's largest, peaked at more than $2 billion in 2000, said Rick Scott, vice president for finance and administration. This summer the value is between $1.7 billion and $1.8 billion. The decline led McKnight to slice its grants from $94 million in 2000 to $90.7 million in 2001. It's not yet clear whether McKnight will disburse less than its usual 5 percent this year.

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