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.

 


 

Leave a Comment:

RELATED ARTICLES

Charlie Munger and stock picks at the Sohn Conference

8 factors to consider when assessing LICs

Last minute tax deductions in a public ancillary fund

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

The greatest investor you’ve never heard of

Jim Simons has achieved breathtaking returns of 62% p.a. over 33 years, a track record like no other, yet he remains little known to the public. Here’s how he’s done it, and the lessons that can be applied to our own investing.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

Latest Updates

Shares

20 US stocks to buy and hold forever

Recently, I compiled a list of ASX stocks that you could buy and hold forever. Here’s a follow-up list of US stocks that you could own indefinitely, including well-known names like Microsoft, as well as lesser-known gems.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Property

Baby Boomer housing needs

Baby boomers will account for a third of population growth between 2024 and 2029, making this generation the biggest age-related growth sector over this period. They will shape the housing market with their unique preferences.

SMSF strategies

Meg on SMSFs: When the first member of a couple dies

The surviving spouse has a lot to think about when a member of an SMSF dies. While it pays to understand the options quickly, often they’re best served by moving a little more slowly before making final decisions.

Shares

Small caps are compelling but not for the reasons you might think...

Your author prematurely advocated investing in small caps almost 12 months ago. Since then, the investment landscape has changed, and there are even more reasons to believe small caps are likely to outperform going forward.

Taxation

The mixed fortunes of tax reform in Australia, part 2

Since Federation, reforms to our tax system have proven difficult. Yet they're too important to leave in the too-hard basket, and here's a look at the key ingredients that make a tax reform exercise work, or not.

Investment strategies

8 ways that AI will impact how we invest

AI is affecting ever expanding fields of human activity, and the way we invest is no exception. Here's how investors, advisors and investment managers can better prepare to manage the opportunities and risks that come with AI.

Sponsors

Alliances

© 2024 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.