Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 304

Five charity-supporting investment vehicles

In 2019, charities and not-for-profits will benefit from around $20 million in donations as charity-supporting investment vehicles come of age. The beauty of it? No investor has to write a cheque while the money is effectively and efficiently managed to the benefit of a wide range of stakeholders.

What is a charity-supporting investment vehicle?

Rather than the fund managers receiving a management fee, it is redistributed directly to charities, providing them with a sustainable and growing income source. This year more than $1.6 billion worth of investments have gone through the five existing vehicles in Australia, serving the dual purpose of delivering investments returns as well as social returns via charitable donations.

Click to enlarge

Consider the three main stakeholders in the structure.

1. From the fund manager's point of view

The costs to a single fund manager of investing additional funds or sharing intellectual property is negligible, although the access and knowledge are valuable. To date more than 30 fund managers have embraced the opportunity to support one of the charity-supporting equity investments in Australia. They ‘give back’ to the charitable sector through a mechanism other than writing a cheque.

2. From the investor's point of view

In our role as advisers, we stress that first and foremost an investment product needs to be considered on its merits and be appropriate in the context of a client’s overall portfolio and investment objectives.

The charitable donation tail does not wag the investment dog. That said, the investment managers who sit behind these vehicles are generally good quality and, in some cases, include managers who have otherwise reached capacity and are no longer taking new money from investors.

When this type of investment fits with a portfolio, the investment serves two purposes: it is part of an investment portfolio and it is effectively ‘passive giving’. This is beneficial for investors who have a portfolio of assets serving charitable purposes such as Private Ancillary funds, other Foundation or purpose-driven organisations, but only when it fits with their existing investment strategy.

3. From the charity's point of view

The income stream from this type of donor can be a reliable source of income with a growth prospect in line with the investment. Furthermore, the charity is tapping into a new world of passive donors who may have invested on the merits of investment product alone and who would not otherwise be an active or engaged donor.

History of charity-supporting investment vehicles in Australia

Cuffelinks co-founder Chris Cuffe AO was at the forefront of this innovation. He was the key driver in the creation and ongoing success of the first investment vehicle that generated donations to charities, Third Link, in 2008. By 31 December 2018, Third Link had donated over $10 million to Australian charities.

The structure of Third Link is an unlisted unit trust investing in domestic markets. It has an investment track record of market outperformance and supports children’s charities recommended by Australian Philanthropic Services. Although initially an open-ended unit trust, it is now closed for new investments having reached its target size. Fund managers also waive performance fees, which can otherwise be high, and many of the managers are not easy to access directly.

Wilson Asset Management Chairman Geoff Wilson AO created Future Generation Investment Company (ASX:FGX) and its sibling the Future Generation Global Investment Company (ASX:FGG) both under the Listed Investment Company (LIC) structure.

The fund of funds model sees FGX and FGG invest with leading Australian and global fund managers respectively. The management and performance fees waived by the fund managers exceed the companies’ annual investment in charities representing 1% of assets, to the benefit of investors. The two companies have donated $21 million since 2014 to youth at risk and mental health causes respectively.

Investments in FGX and FGG are diversified across Australian and global equity managers respectively, with managers each covering three broad types of strategy – long equities, absolute bias and market neutral. At times it will take cash positions to minimise volatility.

FGX and FGG differ to other charity-supporting investments available today in one key area. Where investors hold more than 1 million shares in either company, that investor can decide which charity the donation goes to. In the case of a charity investing their corpus, the ‘fee’ can be returned to the charity in the form of a donation – effectively giving fee-free investment management.

The ORAH fund (an unlisted managed investment scheme) is specifically aimed at supporting Jewish causes. As a relatively small fund of funds, it has been able to invest with specialist equity managers including some that are otherwise capacity-constrained.

The most recent innovation is the LIC, Heart and Minds Investments (ASX:HM1). This offering is unique because instead of offering a diversified mix of managers and funds, it holds a more concentrated portfolio of around 25 high conviction securities selected by leading fund managers in Australia and overseas. Donations from Hearts and Minds Investments are directed to Australian medical research institutes. At its current size of about $600 million, it will give away about $8 million a year. Chris Cuffe is the Chair and Geoff Wilson is also on the Board.

A potential win-win for all

The generosity of the funds management community combined with the innovation and drive of committed individuals in the financial sector has been the key to the success of these investment products.

For all investors, the potential returns from the investment and an understanding of the risks are paramount but having made the investment decision the ability to generate both an investment return and a social return is compelling.

 

Bernie Connolly is Executive Director and Financial Adviser at Morgan Stanley Wealth Management. This article is general information and does not consider the circumstances of any individual.

 

  •   1 May 2019
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

Is now the time to invest in small caps?

Charlie Munger and stock picks at the Sohn Conference

8 factors to consider when assessing LICs

banner

Most viewed in recent weeks

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Four best-ever charts for every adviser and investor

In any year since 1875, if you'd invested in the ASX, turned away and come back eight years later, your average return would be 120% with no negative periods. It's just one of the must-have stats that all investors should know.

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Our experts on Jim Chalmers' super tax backdown

Labor has caved to pressure on key parts of the Division 296 tax, though also added some important nuances. Here are six experts’ views on the changes and what they mean for you.        

Latest Updates

Investment strategies

LICs vs ETFs – which perform best?

With investor sentiment shifting and ETFs surging ahead, we pit Australia’s biggest LICs against their ETF rivals to see which delivers better returns over the short and long term. The results are revealing.

Retirement

The growing debt burden of retiring Australians

More Australians are retiring with larger mortgages and less super. This paper explores how unlocking housing wealth can help ease the nation’s growing retirement cashflow crunch.

The ASX is full of broken blue chips

Investing in the ASX 20 or 200 requires vigilance. Blue chips aren’t immune to failure, and the old belief that you can simply hold them forever is outdated. 

Shares

Buying Guzman y Gomez, and not just for the burritos

Adding high-quality compounders at attractive valuations is difficult in an efficient market. However, during the volatile FY25 reporting season, an opportunity arose to increase a position in Mexican fast-food chain GYG.

Investment strategies

Factor investing and how to use ETFs to your advantage

Factor-based ETFs are bridging the gap between active and passive investing, giving investors low-cost access to proven drivers of long-term returns such as quality, value, momentum and dividend yield. 

Strategy

Engineers vs lawyers: the US-China divide that will shape this century

In Breakneck, Dan Wang contrasts China’s “engineering state” with America’s “lawyerly society,” showing how these mindsets drive innovation, dysfunction, and reshape global power amid rising rivalry. 

Retirement

18 rules for ageing well

The rules to age successfully include, 'the unexamined life lasts longer', 'change no more than one-eighth of your life at a time', 'nobody is thinking about you', and 'pursue virtue but don’t sweat it'.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.