Wealth Management – Malcolm Burrows
By Malcolm Burrows
Canadian foundations are experiencing an exceptional moment — of philanthropy, global challenges, and regulatory change. This moment has the potential to produce positive results for charities and communities, but it helps to understand how and why. Below are tales of three Canadian foundations that I have cobbled together from public sources.
A Winnipeg Mega-Donation
The Winnipeg Foundation announced a massive gift of $500 million on November 29th, 2022 — fittingly “Giving Tuesday”. Also fitting for Winnipeg and the future of philanthropy is the donor and way of giving. Miriam Bergen, who died in January 2022, was a low-profile businesswoman who owned 27 rental apartment buildings clustered in Winnipeg. The gift is an estate donation.
First off, awed kudos to The Winnipeg Foundation. Canada’s oldest community foundation (1921) is by many measures also its most successful. It’s connected and trusted locally. It has enjoyed success greater than its national peers in terms of donations and endowment ($1.75 billion in 2021). This donation is for that endowment.
Miriam Bergen is the perfect Winnipeg donor. She wasn’t well known or glitzy. She loved sports (Bombers and Jets), dancing and nature. She had life companion who is a woman. She had no kids and the foundation was her major heir. She wanted a family legacy and ongoing employment for her 200 employees. The last point is where it gets interesting from a charitable perspective.
The donation is in the form of private company shares. The Winnipeg Free Press reports that the Foundation will keep the real estate company intact and use the profits to fund granting. So, in essence the endowment will be majority invested in a single real estate operating company. That may make a lot of sense initially and is probably an excellent source of annual income for granting purposes. Long-term the foundation may run into fiduciary, legal, business and even reputational issues as a major landlord. Fortunately, The Winnipeg Foundation is a strong organization that can navigate these issues, but they aren’t for the faint of heart.
Miriam Bergen, the donor, is also noteworthy. She is a rebuke to the usual image of the “philanthropist” and hence a wonderful reminder not to make sexist or regional assumptions. Hers is one of Canada’s biggest donations ever, but, mark my work, there will be larger one in the near future.
Spending Down
On November 29th, 2022, the Toronto-based Ivey Foundation announced in it will be spending down its $100 million endowment over the next five years. The urgent need? Climate change and funding the policy and technology to mitigate it. After 75 years, this private foundation is a leading funder of environmental solutions, although has funded everything from education to social services to healthcare. Now it is stepping up its response to a global existential crisis by spending capital, not annual investment returns.
The news release from Canada’s 6th oldest private foundations said “The majority of the additional $100 million in funding announced today will be used to enhance the Foundation’s efforts to address climate change and advance Canada’s low-carbon economy. This will double the Foundation’s lifetime grantmaking and increase the capabilities of the Foundation’s core partners on the front lines of Canada’s climate and energy transition.”
Congratulations to the Ivey Foundation and its second-generation directors for making this bold choice. Family philanthropy has an inherent and at times oppositional tension between family ties and public benefit — that is, between family and philanthropy. This Board of Director chose environmental impact over family legacy and continuity.
Ivey Foundation is taking what seems to be a less chosen path, but it is a philanthropic route that is increasingly common. Spend-down and immediate pay out foundations are growing in popularity. Examples of this trend are, however, harder to spot than institutionalized foundations. Sometimes they are hiding in plain sight. The Bill and Melinda Gates Foundation has a spend-down mandate. Philanthropists are giving more to foundations and distributing it faster –both are positive trends.
Increasing Disbursement Quota
In 2023, the disbursement quota for foundations will increase from 3.5 percent of assets per annum to 5 percent. Good news for charities seeking funds. For some foundations this increase is easy to manage because they consistently grant more than the regulatory minimum. Other foundations treat the minimum disbursement quota figure as a regulatory maximum. The low-key $1 billion Li Ka Shing (Canada) Foundation is in the later category.
Li Ka Shing (Canada) Foundation was establishing in 2005, when Mr. Li, one of the world’s richest men, sold his large stake in CIBC. Between 2016 and 2021, its assets have shown some volatility and ranged from $866 million to $1.04 billion. The Foundation has made a series of grants to qualified donees, mostly to international universities.
One of the quirks of the disbursement quota is it is based on three factors.
- The annual payout rate, which is increasing from 3.5 percent on assets over $1 million to 5.0 percent.
- The average market value of the two prior years.
- Any surplus or deficit carried forward over five years.
The Li Ka Shing (Canada) Foundation had a big granting year in 2016 ($55.5 million), but from 2017 to 2021 it has kept to the 3.5 percent minimum and used its surplus. In 2021, it granted a modest $27.7 million or 2.9 percent of the previous two-year average market value of $952 million.
In 2023, however, the Foundation and a few other private foundations, will be required to grant more (or spend more on charitable programs). The Li Ka Shing (Canada) Foundation will need to grant approximately $48 million at the new 5 percent rate. That’s an increase of $20 million or 72 percent year over year. This fully compliant foundation is an example of how raising the legal bar to 5.0 percent can help get funds flowing out of foundations.
Malcolm Burrows is a philanthropic advisor with 30 years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. Views are his own. malcolm.burrows@scotiawealth.com. He writes this column exclusively for each issue of Foundation Magazine.
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