The Perpetuity Trap: Why Foundation Endowments Misallocate Capital

Roshan Ghadamian
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Roshan Ghadamian: Institute for Regenerative Systems Architecture

IRSA Working Papers from Institute for Regenerative Systems Architecture

Abstract: The perpetual foundation — an endowment designed to exist indefinitely while distributing only a small fraction of its corpus each year — is treated as the default architecture of institutional philanthropy, a neutral container for serious charitable intent. This paper argues that perpetuity is not a neutral container but a capital structure with its own logic, systematically misaligned with the missions it is meant to serve. The misalignment is structural rather than behavioural: a foundation is bound by two fiduciary duties — preserve the corpus, advance the mission — and the real-terms preservation mandate forces the first to dominate the second, so the institution is optimised for its own survival rather than for resolution of the problem. Trustees have long been described as guardians of the future against the claims of the present. The objection here is that intergenerational equity presumes a benefit that keeps. Where the value of an intervention is tied to a window in a beneficiary's life — a developmental stage, a threshold not yet crossed, an asset not yet past saving — capital held for a later generation is not transferred to them, it is spent on nobody: the three-year-old is four, and no rate of return recovers the difference. Where the benefit does keep, the standard account is right and this argument does not reach it. Three failure modes follow. Corpus primacy, in which preservation is the binding constraint and the mission the residual; the payout floor as anchor, in which a regulatory minimum designed to constrain the worst behaviour anchors the typical; and horizon inversion, in which the structure holds capital longest precisely where early deployment returns most. We show why the sector's three standard reforms — higher payout, mission-related investment, spend-down — cannot reach the conflict. âš ï¸ The second mode is stated at its defensible strength and no higher. That a floor becomes a ceiling is refuted on US foundation data and is not claimed; what is argued is anchoring within funds where preservation binds. Clustering at the minimum has at least one rival explanation and this paper does not separate the two.

Keywords: recoverable capital; foundation endowments; perpetuity; fiduciary duty; payout policy; corpus preservation; social discount rate; philanthropic capital structure (search for similar items in EconPapers)
JEL-codes: D61 D64 G35 H25 H43 K34 L31 (search for similar items in EconPapers)
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:evk:wpaper:pt

DOI: 10.2139/ssrn.7006300

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