Innovative Ways of Operating a PAF

In JBWere’s Philanthropic Services’ first report on the contribution that Private Ancillary Funds (PAFs) make on Australia’s charitable sector, author John McLeod offers his tips on innovative ways to operate a PAF.

While many PAFs are run very simply and successfully, a significant number are using the structured giving vehicle in more diverse ways.

This involves activities that further enhance both the social good being achieved and the personal experiences of founders/trustees through their involvement in the PAF process, such as:

• becoming more closely involved with areas of social interest – this moves the PAF beyond “just writing the cheque”.

It can extend from casual discussions with grantees to sharing knowledge/contacts and joining Boards.

It can even extend to arranging research in a particular field to better direct funding/activities or to promote an overlooked problem

• arranging or encouraging leverage of their distributions – particularly with Government and/or other donors where matched funding challenges may encourage further support from various sources.

While an increased profile has come from efforts in gaining Government funding, it has even extended to the Impact 100 programs in Western Australia and Victoria, and to crowdfunding events (although care needs to be taken to be sure the recipient organisations are DGR 1s)

• working with other donors, particularly other PAFs – having a growing pool of PAFs has inevitably meant a number have combined to collaboratively fund and offer other support/guidance to particular causes.

Not only has this greatly aided the causes but it has seen new and strong friendships develop between families and others not previously linked

• funding evaluation for DGRs – a number of PAFs have funded the DGRs they support to undertake Social Return On Investment (SROI) or similar evaluations on their programs.

This has allowed both improved and better directed activities and can be used as evidence of success in attracting other funders

• using their corpus for both social and financial return – a small but growing number of PAFs are using part of their corpus to invest in assets that are designed to provide a social as well as financial return.

This is known as Impact Investing and our Philanthropic Services team can provide further information

• using other ways of granting – some PAFs are providing DGRs with other forms of support through allowing use of corpus assets.

One of the most common ways has been by providing the use of property at a low or no rent cost.

The market rent forgone may be able to be included in the calculation of minimum annual distributions required by the PAF

• improving the knowledge base of PAFs – it is recognised that better knowledge will lead to better grant making.

Many PAFs fund activities which enhance the quality of their grant making such as membership of Philanthropy Australia (PA) (15 per cent, and rising, of PAFs are now members) or attending seminars/conferences related to their areas of funding interest

• an opportunity to reward their responsible person – while the vast majority of people acting as the responsible person on a PAF Board do it because of their relationship with the PAF founder/family, a number of PAFs not only have them contribute to the decisions on grant recipients but actually allocate a distribution to a DGR of their choice as a reward for their services

• employing a professional manager – depending on a PAFs size and complexity, a number employ professional managers to run their PAF, similar to other large Foundations. They may be chosen for their management and/or expertise particularly in specific cause areas

• involving children or extended family in their PAF – this can be simply achieved by allocating a portion of distributions to children for learning opportunities to adding them as trustees as they get older.

A high proportion of PAFs who are members of PA, have their children as members of PA’s New Gen program.

This program adds to the skill base and connectivity of the next generation. Management of the PAF can also be shared or alternated between family members to spread skills and workload.

This nurtures the formation of social values and provides financial experience in a controlled and audited environment. For extended and multi generational families, often it is their philanthropy that provides the formal glue that holds them together over time.

• benefiting from direct experience in the NFP sector – often children, extended family or friends may be working or volunteering in the NFP sector and have specific knowledge that is brought into the PAF and influences grant making activities

• using donations to a PAF to help in annual tax and estate planning – many donations to PAFs occur in years of high income that may be irregular or a once off and may not match the desire to continuously support causes or even allow time to identify causes or specific DGRs.

The PAF vehicle allows a separation of the timing of the donation and the distribution. In addition, many PAFs are now a beneficiary of the estate of founders and other family members, and

• ensuring tax effective donations can continue to be made to DGRs – many retirees are finding that in a low or no tax superannuation environment, all giving is made out of pre-tax dollars. While they want to continue to support causes, they are missing the opportunity of leveraging those donations as deductions unless they have matched their higher income years with their use of structured philanthropy, such as establishing a PAF.

About the Author: After retiring as a Principal and Executive Director of Goldman Sachs JBWere, John McLeod has devoted more time to both his family’s interests in private philanthropy through a Private Ancillary Fund (PAF) established in 2004 and broader education through independent consultancy in the sector while still undertaking research and client advisory work for the Philanthropic Services team at JBWere. McLeod is also the co-author of IMPACT – Australia: Investment for social and economic benefit.