Government Urged to Make Philanthropy Investment Changes

The Australian Government has been urged to introduce a new framework that would change the way philanthropic funds are able to give away their money.

A report commissioned by the Department of Social Services and prepared by Philanthropy Australia recommended that the government follow the lead of the US and allow philanthropic funds to make investments that would count towards their required distributions.

The report was presented to the Prime Minister’s Community Business Partnership, a group of leaders from the business and community sectors, including Prime Minister Malcolm Turnbull, to promote philanthropic giving and investment in Australia.

Currently in Australia Private Ancillary Funds (PAFs) and Public Ancillary Funds (PuAFs) are subject to a minimum distribution requirement of 5 and 4 per cent of their net assets per annum respectively.

The report has recommended that a Program Related Investments framework be introduced, which would allow PAFs and PuAFs to make below-market return investments, including loans, loan guarantees and equity purchases, in eligible entities.

It said that these investments should count towards the minimum distribution that the philanthropic fund is obliged to make that year.

CEO of Philanthropy Australia, Sarah Davies, said there was a strong appetite within the philanthropic sector for the new framework to be introduced.

“The project involved consulting a range of public and private ancillary funds and other stakeholders, and included two facilitated workshops designed to gauge interest in introducing a Program Related Investments framework in Australia,” Davies said.

“We were surprised with the high level of interest and the strong support for Program Related Investments which was very apparent in these consultations – there’s a clear view that Program Related Investments can help better leverage philanthropic assets for increased impact.

“We think they’re a policy change which could definitely promote more and better philanthropy, and so we’re hopeful that the government will introduce them in Australia.”

CEO of Social Enterprise Finance Australia and Prime Minister’s Community Business Partnership member, Ben Gales, told Pro Bono Australia News that interest in the framework was warranted.

“There are lots of organisations and charities that are looking at generating new income streams and new ways of addressing disadvantage and [the framework] is playing to that. It’s helping those organisations get some of those ventures off the ground,” Gales said.

“There’s no coincidence of the timing. There’s a groundswell towards looking at new ways of addressing disadvantage and furthering those charitable objectives.

“People are looking at new types of business models, how to bring new resources to bear, and this plays to that. I think that’s why this is finding its place today when in the past it may not have been such a priority.”

Gales said current regulations around PAF and PuAF investments in Australia were often difficult to navigate.

“It’s a complex system. One of the objectives of the Program Related Investment framework that’s being recommended is to simplify the situation,” he said.

“There’s quite a bit of uncertainty around what is allowed and what isn’t allowed. It’s set out in the guidelines in terms of sub-market returns, but I think it’s overly complex and I think that’s why it’s not taken up very much.

“Personally I find the structures complex. Certainly the guidelines on these program related investments are absolutely too complex in terms of how they’re structured today. Anyway that we can simplify that is good news.”

Gales cautioned that the framework would not work towards unlocking billions of dollars or replacing grant donations, but said it would be “another tool in the kit box that foundations and philanthropists can use”.

The full report can be downloaded here.