The 136 Fund, a little-known New York foundation, has made tens of millions of dollars in grants since it began operating in 2008.
From fiscal years 2014 to 2016, it received more than $154 million and distributed $100 million in grants, according to tax documents.
Unlike most other foundations, however, the public doesn’t know which charities received those grants. That’s because all the money distributed by the 136 Fund has gone to donor-advised funds, an increasingly popular way to give that is used most often by well-to-do individuals, not by foundations.
Once money is deposited in a donor-advised fund, there is no legal requirement for the donor to disclose the ultimate recipients of the money. The 136 Fund lists no employees other than a trustee who reports spending less than one hour a week working for the foundation. A certificate of incorporation filed in New York State shows it is controlled by hedge-fund founder Israel Englander, who declined to comment for this article.
The 136 Fund is one of at least six foundations that distributed more than 95 percent of their grants to a national donor-advised fund. And it is one of 557 identified by the Chronicle that made at least one grant to a donor-advised fund during the 2014 to 2016 fiscal years.
Such distributions are completely legal under the law that governs donor-advised funds, and many proponents say the approach makes giving more efficient while sheltering controversial nonprofits and donors from scrutiny that could jeopardize charity missions.
Still, some critics wonder whether federal law should be tightened to forbid distributions from foundations to donor-advised funds.
Daniel Borochoff, president of CharityWatch, a watchdog that monitors nonprofits, said that he doesn’t know about the specific activities of the grant makers in the Chronicle analysis, but the general idea of foundations directing most of their grants to donor-advised funds “makes a mockery of the reporting mechanisms” for foundations.
“Having sunlight on how a tax-subsidized entity operates is helpful to avoid misappropriation of funds.” He added, “Why even have that if it is so easy for people to just hide?”
Defenders of donor-advised funds say there are good explanations for why some foundations route money through those accounts. For example, a foundation may use a donor-advised fund as a low-cost way to distribute all of its assets and shut down, said Lisa Dalberth, chief administrative officer at Fidelity Charitable, the largest sponsor of donor-advised funds in the nation.
Lack of Transparency
For decades, foundations have been required to name the recipients of their grants on informational tax returns, along with the amounts distributed. Giving to a donor-advised fund qualifies in terms of meeting federal rules that require foundations to distribute at least 5 percent of their assets, on average, every year. The problem, say critics, is that unlike traditional grant making, donor-advised funds make it impossible to track the flow of money from the original donors to the ultimate recipients.
The sponsors of donor-advised funds, like Fidelity Charitable and community foundations, invest charitable assets and distribute them to eligible nonprofits on the donor’s advice. However, distributions from specific donor-advised fund accounts remain secret unless the original donor chooses to disclose his or her identity.
And unlike at private foundations like Ford and Kellogg, donor-advised funds are not subject to federal payout requirements. There’s nothing wrong legally if money in donor-advised funds sits idle for years.
Conservative Estimate
To be sure, the grants going to donor-advised funds appear to be a small portion of all foundation giving. The Chronicle’s examination of electronically filed 990-PF tax data identified more than $737 million in foundation grants to the five largest donor-advised-fund sponsors during the 2014, 2015, and 2016 fiscal years.
Data from the Foundation Center shows that all grant-making foundations distributed more than $41 billion in 2014. The $166 million in grants to national donor-advised funds during fiscal 2014 that the Chronicle identified represents less than half of 1 percent of that total.
However, the Chronicle analysis represents a conservative total and likely undercounts the amount of money foundations gave to donor-advised funds.
(Our analysis was based on a search of grants to only the five largest sponsors of donor-advised-funds based on the latest Philanthropy 400 rankings. For the top 10 foundations supporting donor-advised funds, we added grants data gathered from paper-filed forms 990-PF, but we did not gather data from paper forms for any other foundations.)
The Top Five
The Chronicle analysis found that each of the five largest foundations that gave money to donor-advised funds from the 2014 through 2016 fiscal years did so with more than 60 percent of their grant dollars.
Three of those, including the 136 Fund, made more than 95 percent of their grant distributions to donor-advised funds:
The Zoom Foundation led all grant makers in the Chronicle’s analysis to donor-advised funds. The Connecticut-based foundation poured just over $100 million into funds sponsored by Fidelity Charitable. Stephen Mandel, the billionaire founder of hedge fund Lone Pine Capital, and his wife, Susan, contributed $161 million to the foundation during that time.
The couple also gave millions to the Lone Pine Foundation, where Mandel serves as president and chairman. Lone Pine’s grants support primary education and youth development.
Articles of incorporation for the 136 Fund’s sole donor, an eponymous limited-liability corporation, show Israel Englander, the founder of hedge fund Millennium Management, controls the corporation but discloses little other information about the foundation’s activities. Englander repeatedly declined through a spokesman to respond to questions from the Chronicle about the foundation’s operations and grant making.
The 136 Fund’s $100 million in grants identified by the Chronicle were made to accounts sponsored by Fidelity Charitable.
- The Quetzal Trust is funded by Peter Brown, the co-CEO of hedge fund Renaissance Technologies, and Margaret Hamburg, former Commissioner of the Food and Drug Administration. The couple’s foundation directed 96 percent of the $33.6 million it made in grants from fiscal years 2011 to 2016 to Fidelity Charitable.
The Hollyhock Foundation, Quetzal Trust, and Zoom Foundation did not respond to requests for comment for this article.
Donor Privacy
Sean Parnell, vice president for public policy at Philanthropy Roundtable and a longtime advocate for donor privacy, wrote in an email that he doesn’t see the grants to donor-advised funds as cause for alarm.
“There only appear to be a handful of foundations that give primarily through DAFs and no more than idle speculation that there might be a problem,” wrote Parnell in an email.
“Philanthropists opt for privacy for a variety of reasons, and absent well-grounded concerns and examples of abuse, policy should be to respect that privacy while also keeping an eye out for instances that might truly warrant concern,” he added.
In a December 2017 notice, the Internal Revenue Service requested comments on the treatment of foundation transfers to donor-advised funds and whether they should count toward a foundation’s annual payout if the donor-advised fund does not promptly distribute the money to other charities. Parnell submitted comments on behalf of the Philanthropy Roundtable opposing tighter regulations, as did the National Philanthropic Trust and others.
The Council on Foundations cited several reasons why a private foundation might give to a donor-advised fund run by a community foundation. Such an arrangement might be done to use the community foundation’s expertise to make smarter grants in specific areas, the council wrote. In other cases, as an inducement to get someone to serve on its board, a private foundation may establish a donor-advised fund and give the trustee advisory privileges.
Comments from the Community Foundation Public Awareness Initiative also generally opposed tighter rules, although it added that if a foundation were making grants to a donor-advised fund and those funds then sat “dormant,” that would be “an abuse of the public trust and a loophole that should be closed.”
Shielding Dangerous Work
Though most of the foundations contacted for this article declined to comment on their grant making, the Maclellan Foundation echoed Parnell’s reasoning in describing the advantages of giving through donor-advised funds.
The Chattanooga-based foundation directed the majority of its giving from 2011 to 2016 through the National Christian Foundation, a donor-advised-fund sponsor.
David Denmark, executive director of the Maclellan Foundation, wrote in an email that much of his organization’s grants “are made in foreign countries, where our work has sometimes been the target of extremely violent, indigenous elements.”
The arrangement, said Denmark, keeps the name of the Maclellan Foundation “out of the direct flow of information in those countries.” He added that the National Christian Foundation also offered important back-office support for complex gifts and due diligence of potential grantees.
The National Christian Foundation declined to comment on individual donors to its donor-advised funds, but spokesman Steve Chapman noted in an email that the payout among National Christian Foundation’s funds in 2017 was 35 percent.
Gil Nusbaum, general counsel at the National Philanthropic Trust, a donor-advised-fund sponsor that conducts research on the scope of donor-advised funds across the country, said he is aware of several cases in which a foundation would consider making a grant to a donor-advised fund: When the fiscal year-end looms, some foundations give to the funds to avoid paying the federal penalty on undistributed income. Others may choose to route grants through a donor-advised fund to keep the foundation’s name from being associated with a controversial cause.
“We find that foundations will sometimes use donor-advised funds to make grants that either aren’t directly aligned with their stated mission but that are still grants that are compelling for charitable purposes, or grants that they just don’t want linked directly back to the foundation,” said Nusbaum.
However, Nusbaum was not aware of any foundations that directed all of their grants to donor-advised funds at National Philanthropic Trust. “It’s not something that we would promote,” he added.
Pushing a Ban?
Even if some foundations have legitimate reasons to give money through donor-advised funds, critics still see a system that allows others to avoid disclosure without a good reason — and delay dollars from ending up in charities’ hands.
“This, effectively, is getting around our payout requirements,” said Dean Zerbe, national managing director at AlliantGroup.
“I see too much of it to make me think that it’s all going to help missionaries in Mali,” said Zerbe, who formerly served as a top tax aide to the U.S. Senate Committee on Finance when it drafted legislation to stamp out abuses at donor-advised funds. Though he acknowledges that some foundations have good reason to give through donor-advised funds, he ultimately concludes that these grants should not count toward a foundation’s payout requirements.
“I would ban them,” he said of foundation grants to donor-advised funds. “Crazy enough, we actually want you to give your money away.”