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There is no app for it yet, but anyone wanting to set up a private foundation can now hand over activities such as registration and accounting to a growing range of consultants and other third-party service providers. Yet while outsourcing minimises their bureaucratic burdens, donors are increasingly seeking help with the bigger question — how to maximise the impact of their money.
While outsourcing is a relatively new concept in the philanthropic world, donors are recognising the benefits of avoiding having to navigate the complex legal, tax and accounting requirements associated with establishing a private foundation.
In the US, for example, Foundation Source, a company that provides philanthropic support and administrative services, now has more than 1,200 institutions as clients.
Going it alone is certainly not for the faint-hearted. Rather like setting up a company, creating a foundation involves everything from setting up a legal entity with directors and registering its charitable status to establishing a governance structure, opening a bank account and making provision for the investment of its endowment.
“It’s not impossible but it has to be done carefully and in the right way,” says Robert Chartener, chief executive of Foundation Source.
The company was created to provide comprehensive outsourcing services for foundations. It even sets up corporate structures in advance so that all it takes is a name change to create a private foundation for a new client. “We can have a foundation up and running in a few days,” says Chartener.
By removing the need to hire lawyers, accountants and others, Foundation Source also makes it possible for people with relatively small amounts of money to set up a foundation. “We start a large number of foundations every year with well under a million dollars,” says Chartener.
Similarly, in the UK, London-based Prism offers back-office services to individuals, families and institutions — usually giving £500,000 to £3m a year — who want help establishing and administering a grant-making foundation.
The advantages of outsourcing private foundation administration to a third party go beyond tax and bookkeeping. Not to be underestimated is the ability to explore issue areas and potential grantees anonymously, without setting up expectations. “We can go out and do informational interviews with potential grantees, people in the community, elected officials, corporate leaders and others that a foundation might want to partner with, without divulging who that is,” says Emmett Carson, chief executive and president of the Silicon Valley Community Foundation, which offers customised philanthropy services.
Tapping into investment expertise is another reason for private foundations to turn to third parties. SVCF, for example, allows foundations to pool their endowment funds with the assets handled by the community foundation’s dedicated team of investment managers.
Donors can choose from one of five investment options. “If they don’t like the performance over time, they can move it to a different manager,” says Carson. “That’s a way to get great results, a broader diversification and likely pay a smaller fee.”
However, managing its administration, tax benefits and endowment investments is only a small part of what a private foundation does. Most important, of course, is making well-considered grants that can have an impact on a problem, whether the founder’s focus is combating poverty, curing disease or increasing biodiversity.
And, in developing their grant-making strategies, donors are also starting to seek outside support. “Increasingly, there’s a sense of needing help in being smart about philanthropy,” says Doug Balfour, chief executive of Geneva Global, a consulting company that specialises in international philanthropy.
The company’s clients, Balfour explains, are generally people who have made their own money as investors, businesspeople or entrepreneurs. “The people looking for us have decided they want to take a similar approach to the one they used to create their wealth,” he says.
Geneva Global therefore helps foundations with everything from programme design and project management to grant administration, monitoring and evaluation.
The company also offers research services that help clients to discover more about the social problems they want their foundation to tackle and introduce them to new approaches to international development. This, says Balfour, is because founders increasingly want to learn more about what they are doing. “They recognise that social change is complicated,” he says.
Given the growing appetite of philanthropists to understand the complexities of social and environmental challenges, demand for services that go beyond tax and legal consulting is likely to expand.
“There’s an interesting movement in the market that’s picking up quite significantly, which is people paying for support around insights so that they can become experts,” says Jake Hayman, co-founder and chief executive of The Social Investment Consultancy.
With offices in London, New York and Dubai, the consultancy provides advisory services to individuals and foundations committing sums of between £250,000 and £25m.
Its services include “insight trips” on which philanthropists spend time in a local a community, attend workshops and meet government officials, business leaders, staff of non-profit organisations and others. “What we’re running is essentially a mini-MBA or PhD course in social change,” says Hayman.
He believes that if philanthropists are to develop game-changing social innovations, they will have to become far better informed and experienced than in the past. “In order to innovate you need to know what you’re doing,” he says. “Otherwise, it’s easy to waste a lot of money quickly.”