Peter Fitzhugh Brown is a top executive of Renaissance Technologies, one of the world’s largest hedge funds. His wife, Margaret “Peggy” Hamburg, is chair of the American Association for the Advancement of Science, a former commissioner of the Food and Drug Administration, and a former Rockefeller Foundation trustee. Their family foundation in Washington, D.C., called the Quetzal Trust, has contributed to Harvard and Yale, to the elite prep schools Sidwell Friends and Choate Rosemary Hall, and to Math for America, a nonprofit started by Jim Simons, the billionaire founder of Renaissance and a major philanthropist in his own right.
But those donations — by far the largest was a $500,000 gift to Harvard — represent only a small fraction of the Quetzal Trust’s giving, which amounted to $98.2 million from 2010 to 2018. The vast majority of their donations — $96.2 million, or 98 percent — went to the family’s donor-advised fund at Fidelity Charitable.
Where did that money wind up? Brown and Hamburg won’t say.
The Quetzal Trust is far from alone in its use of donor-advised funds. Well-known philanthropists, including Google co-founder Larry Page and Tesla founder Elon Musk, have moved millions from their private foundations to donor-advised funds. With the help of a public database at Grantmakers.io, the Chronicle identified 375 private foundations that reported donating a total of more than $740 million to donor-advised funds in 2018, the latest year for which tax returns are available.
That’s a problem, according to critics of donor-advised funds, which are giving vehicles that capture an ever-increasing share of Americans’ donations to charity. Money can pile up in donor-advised funds without reaching operating charities: Donor-advised funds funds, or DAFs, held about $121 billion in assets in 2018, the National Philanthropic Trust reports, nearly twice as much as they held five years earlier.
Private foundations and donor-advised funds operate under different rules. Private foundations must disclose the recipients of their gifts and pay out at least 5 percent of their assets, on average, every year. By contrast, donor-advised funds need not make distributions or report where gifts from individual fund accounts go.
Transfers from private foundations to DAFs, while legal, capitalize on the differences between the rules, critics say.
Roger Colinvaux, a law professor at Catholic University and an expert on donor-advised funds, who was formerly counsel to Congress’s Joint Committee on Taxation, says: “If all the foundation is doing is shifting money from one investment fund to another investment fund, it’s violating the spirit of the rules. You have no idea what causes [the foundations] are funding. That runs against the idea that these entities need to be transparent.”
Jan Masaoka, chief executive of the California Association of Nonprofits, agrees: “Accountability for DAFs has never been more crucial than it is now.” The group tried unsuccessfully to persuade California lawmakers to pass legislation to get regulators to gather more data about donor-advised funds.
Pressing Congress for Change
Pressure for new rules to govern donor-advised funds is growing. Philanthropist John Arnold, the founder and co-chair of Arnold Ventures, and Boston College law professor Ray Madoff have drafted a proposal designed to get more money out of foundations and DAFS and into the hands of working charities. The Minnesota Council of Nonprofits, which researched and wrote a report on donor-advised funds last spring, has proposed that foundations be required to report to state attorneys general and the public on all grants from DAF accounts to which they have transferred funds.
Chuck Collins of the Institute for Policy Studies, who co-wrote “Gilded Giving 2020,” a report on wealth inequality and philanthropy, says billions of dollars should not be allowed to sit idle indefinitely in DAFs. “There’s no payout mandate at all,” Collins says. “We as taxpayers should not have to subsidize money that is being warehoused, for whatever reason.”
Others, however, say there are good reasons for private foundations to transfer money to donor-advised funds, including the protection of donor privacy.
“Donor privacy is essential to a vibrant civil society,” says Joanne Florino, a vice president of the Philanthropy Roundtable. “It protects donors who give to controversial causes, donors who give anonymously from a sense of humility or deeply held religious beliefs, and donors who wish to minimize off-mission solicitations.”
While transfers from foundations to donor-advised funds represent a small share of foundation giving, they are part of a bigger shift away from transparency and accountability in philanthropy.
For example, when MacKenzie Scott, the former wife of Amazon founder Jeff Bezos, announced in July that she was giving $1.9 billion to 116 nonprofits, she did so through a donor-advised fund; her disclosure was voluntary and did not say how much she gave to each organization, although groups were free to disclose the size of the gifts.
Other high-profile philanthropists, including John and Laura Arnold, Priscilla Chan and Mark Zuckerberg, Pierre and Pam Omidyar, and Laurene Powell Jobs do some or all of their giving through donor-advised funds or limited-liability corporations, which are lightly regulated.
20 Foundations Transfer at Least $5 Million
The Chronicle’s latest look at the foundation-to-DAF pipeline turned up 20 foundations that gave at least $5 million to a donor-advised fund in 2018 and another 24 that gave at least $1 million to large providers of donor-advised funds — American Endowment Foundation, Fidelity, Goldman Sachs, JP Morgan, the National Christian Foundation, National Philanthropic Trust, Schwab, and Vanguard.
The total of $740 million in foundation-to-DAF transfers understates the flow of money, perhaps substantially, because the database includes only foundations that file digital tax returns, as opposed to paper. Foundations that made transfers to smaller DAF sponsors or to community foundations were not included.
When the Chronicle last tallied donations from foundations to DAFs, it found about $737 million during 2014, 2015, and 2016 — less than the dollars reported in 2018 alone. So the practice is becoming more common.
Google’s Larry Page Tops Transfer List
By far the largest donations from a foundation to a DAF were made by the Carl Victor Page Memorial Foundation, which is funded and led by Larry Page, the co-founder of Google. It has yet to file a tax return for 2018, but its most recent return, for 2017, reports donations of $100 million to the National Philanthropic Trust and $80 million to Schwab Charitable. Whether any of that money has been given to operating charities is not known; the foundation did not reply to requests for comment.
Other foundations that send large sums to DAFs don’t appear to have much else in common.
The Wellspring Philanthropic Fund, which supports progressive causes, transferred $46.4 million to a donor-advised account at Fidelity. The Jesus Fund, which is led by Ronald Cameron, an Arkansas poultry mogul and donor to conservative politicians, gave $18 million to a donor-advised fund at the National Christian Foundation.
Others using the vehicles include the Musk Foundation, led by Tesla founder Elon Musk and his brother, Kimbal; the Anne Wojcicki Foundation, led by the co-founder and chief executive of DNA testing firm 23andMe; and the Sulzberger Foundation, led by Stephen Golden, a member of the family that has a controlling interest in the New York Times Company.
None of the private foundations would say publicly why they are giving to donor-advised funds. Most ignored emails requesting comment. One exception was the Sulzberger Foundation, which said, through its accountant, Jo Anna Fellon, that a donor-advised fund allows individual family members to support their choice of charities. She did not respond when asked why they could not do so through the foundation.
Keeping Donors Anonymous
Quetzal is one of a smaller number of foundations that made all or nearly all of their donations to DAFs.
Others include the Paul E. Singer Foundation, led by hedge-fund billionaire and Giving Pledge signatory Paul Singer, which gave $79 million to JP Morgan Charitable Fund; the Zoom Foundation, led by Stephen Mandel, another hedge-fund founder and billionaire, which gave $58 million to Schwab Charitable; the 136 Fund, led by hedge-fund founder Israel Englander, which gave $38 million to JP Morgan Charitable; the Bolthouse Foundation, which gave $18 million to the National Christian Foundation; the BMS Family Foundation, which gave $13 million to Fidelity Charitable; and the David and Nanci Farber Family Foundation, which gave $12.3 million to the American Endowment Foundation.
Privacy appears to be a key reason foundations give through DAFs.
The Bolthouse Foundation, for example, faced criticism many years ago because it funded conservative nonprofits, including those opposed to abortion rights and gay marriage. Some critics called for boycotts of the family business, Bolthouse Farms, which sells baby carrots, high-end juices, and salad dressings, even though the company was no longer owned by the family. In any event, the foundation has made all its grants since 2006 — $120.4 million in total — to a donor-advised fund at the National Christian Foundation.
One foundation founder, who asked not to be identified but answered questions by email, said that only by giving through a DAF could the giving be kept private. This donor cited the Jewish philosopher Maimonides, who praised donors who give anonymously.
This philanthropist said: “Charitable institutions offer one the opportunity to give anonymously, but it is not truly anonymous. Charities carefully record the names of their donors; they often sell those names; and they make a big point of harassing ‘anonymous’ donors in future years for more money. … These organizations are ruthless in their quests to raise money, and anonymity is often not respected.”
IRS Review
Rules governing foundation grants to DAFs are under review by the U.S. Treasury Department and the Internal Revenue Service, which requested comment on the issue in 2018. Back then, the major philanthropic trade organizations, including the Council on Foundations, Independent Sector, the Philanthropy Roundtable, and the Community Foundations Public Awareness Initiative, signed a letter opposing new rules, including a call from Madoff and Colinvaux to prohibit foundation-to-DAF transfers from being used to meet payout requirements.
This time around, some in the trade organizations have signaled a willingness to work with those seeking regulation to come up with an approach that could win broad approval from the sector.
Kathleen Enright, chief executive of the Council on Foundations, said striking the right balance between privacy and transparency is a challenge.
“In exchange for the tax advantage that comes with institutional philanthropy, appropriate accountability and transparency should be required,” Enright said. “But it’s not universal and unfettered transparency. In certain cases, confidentiality and privacy can be important.”
