Sub-funds – A growing force in Australian philanthropy

Krystian Seibert shares his reflections on what the findings of the Centre for Social Impact (CSI) Swinburne Sub-fund Survey mean.

Today I released the findings of the Centre for Social Impact (CSI) Swinburne Sub-fund Survey. You can read more about the survey and its findings here and download a snapshot of the findings here.

Sub-funds are one option available to donors for structuring their philanthropy, and can be thought of as a form of “giving account” which sits within a larger public foundation, which is usually a “public ancillary fund”.

There are a range of providers with whom a donor can establish a sub-fund. These include community foundations, wealth managers and trustee companies. The donor makes tax deductible donations which are credited against their sub-fund. The assets credited against their name are invested together with the assets of all the other sub-funds managed by the provider, to generate a return. The donor can then make recommendations to the provider for grants to be made out of their sub-fund to eligible charities which must be Item 1 deductible gift recipients.

Until now, we’ve not had any data on sub-funds in Australia. So we’ve had no idea of their number, the amount of assets they hold nor the amount of grants their make. That’s why I undertook the survey, to address this gap in the data on philanthropy in Australia.

The purpose of this article isn’t to go over the findings, but more to share some reflections I have on what they mean.

Sub-funds are a key part of philanthropy in Australia

When we talk about philanthropy in Australia, we have a tendency to talk a lot about big givers and also focus a lot on private ancillary funds. But philanthropy in Australia is diverse and there are a range of ways people can structure their giving.

Private ancillary funds can be an attractive option, but they also come with a lot of administrative obligations which may not be ideal if a donor is looking to focus first and foremost on giving. For this reason, sub-funds present a very worthwhile alternative because they are a simple and convenient way of structuring a donor’s philanthropy. You also only need as little as $20,000 to set up a sub-fund, whilst a private ancillary fund only really becomes viable (in my view) when it has assets of $1 million or more.

As of June 2018 there were actually more sub-funds than there were private ancillary funds in Australia. Yes, the assets they hold and the amount of granting they do is still considerably smaller than that of private ancillary funds, but in 2017-18, $123.4 million was donated into sub-funds. That’s big when you consider that total assets held in sub-fund at the end of 2017-18 were just over $1 billion. If that trend continues, than we can expect them to become even more of a force within Australian philanthropy. I hope that we hear more about sub-funds from here on in, and hopefully having some data on them will help with that.

We should have (many) more sub-funds in Australia

It is striking that based on 2015-16 data from the Australian Taxation Office, 43 per cent of taxpayers with a taxable income of $1 million or more claimed no deduction for giving to a deductible gift recipient. At the same time, Australia is about to witness the largest intergenerational wealth transfer in our history, with estimates that in the next three decades, $2.4 trillion is expected to pass from baby boomers to the next generation.

So there is a lot of excess wealth in Australia, and there will be more to come. Given the attractiveness of sub-funds as a way of structuring philanthropy, we should aim to have 10,000 of them, not just 1,995!

At the same time, we should also aim to increase the number of private ancillary funds we have, because after nearly 20 years of private ancillary funds, 1,653 probably isn’t a number to celebrate. And of course we should have more giving circles, and more workplace giving too! What we need is a national giving campaign to drive such a cultural shift and promote the diverse ways that people can give, including through establishing a sub-fund.

With growth, there may come challenges

The equivalent of sub-funds in the United States, known as donor advised funds, are growing at a rapid pace. In 2017 their assets surpassed US$100 billion and they made grants of US$19.08 billion.

At the same time though, they are also the subject of controversy, with some arguing that too much money is sitting in them and not being granted out. In Australia, sub-funds sit within public ancillary funds, and public ancillary funds are well regulated and report to both the Australian Taxation Office and the Australian Charities and Not-for-profits Commission. But we also don’t know that much about sub-funds – as evidenced by the fact that the CSI Swinburne Sub-fund Survey is the first data we have on them!

For this reason, I think it would be beneficial to encourage more transparency about sub-funds, and a great place to start is for more individual sub-funds to share their grant level data as part of Philanthropy Australia’s Foundation Maps Australia initiative.

The next CSI Swinburne sub-fund survey

I’m planning to undertake the next CSI Swinburne Sub-fund Survey in the second half of 2020, seeking data for 2019-2020. With a two year break between surveys, we will be able to see whether the growth in donations into sub-funds is continuing.

I hope to also be able to get better data on the size of sub-funds, eg by asking providers to provide data on the median sub-fund which they manage. Unfortunately, it’s not useful to calculate the average size of a sub-fund using data from the first survey, as it appears to be skewed by a number of very large sub-funds. I also want to explore donor motivations for establishing sub-funds, to get some insights into their thinking and understand what about sub-funds is attractive to them.

About the author: Krystian Seibert is an Industry Fellow at the Centre for Social Impact at Swinburne University of Technology and has a strategic advisory role with Philanthropy Australia.