Foundation’s astonishing growth
Silicon Valley Community group’s $5.3 billion surge in assets could be linked to Facebook’s stock increase
The Silicon Valley Community Foundation’s assets grew by an astonishing $5.3 billion, or 65 percent, to $13.5 billion in 2017, putting it ahead of the venerable Ford Foundation, which ended the year with an estimated $13 billion in assets.
The Mountain View foundation disclosed the unaudited year-end figure in a news release. It said it took in $1.4 billion in donations and disbursed $1.3 billion in grants in 2017, about the same as in 2016.
That suggests its asset surge came primarily from appreciation of its investments, which would have far surpassed market averages. The Standard & Poor’s 500 index returned 22 percent including dividends last year while the Nasdaq composite index returned 30 percent.
The foundation discloses how much it has invested in broad asset classes such as stocks and bonds, but not specific holdings. Emmett Carson, its CEO, declined to comment on the foundation’s investment performance or strategy.
Some of its outsize gains may have come from Facebook stock, which was up 53 percent last year.
Facebook CEO Mark Zuckerberg put 18 million Facebook shares into his donor-advised fund at the foundation in 2012 and another 18 million shares in 2013. It’s not clear how many shares the foundation still holds.
At the end of 2016, about 39 percent of the foundation’s nearly $8.2 billion in invest-
ments was in global stocks, 17 percent in bonds, 22 percent in cash and equivalents and 21 percent in alternatives such as hedge funds, private equity and real estate, according to its audited financial statement for 2016, the latest available.
The statement noted that 17 percent of total investments (which works out to about $1.4 billion) was in one unidentified company’s “publicly traded common stock.”
If the unidentified stock was Facebook and it represented 17 percent of investments, the foundation would have held about 12.2 million shares worth $115 each, or a total of $1.4 billion, at the end of 2016. The same number of shares at the end of 2017 would have been worth $2.15 billion, a gain of roughly $750 million.
That alone could not explain the foundation’s meteoric appreciation, but it’s possible the foundation also held some non-publicly traded Facebook Class B shares.
On Nov. 7, a limited liability company set up by Zuckerberg and his wife, Priscilla Chan, donated 900,800 Class A Facebook shares to the foundation, according to a Securities and Exchange Commission filing first reported by the Chronicle of Philanthropy. On that date, they were worth $162 million, again not enough to explain the asset surge.
The foundation accepts donations of bitcoin and other cryptocurrencies, which could account for some of the gain. The price of bitcoin soared from around $986 at the beginning of 2017 to a high of $19,161 on Dec. 19, then plunged. It’s around $10,000 now.
The foundation has received large donations of stock from other tech entrepreneurs including Nick Woodman, CEO of GoPro, and Jan Koum, co-founder of WhatsApp, who sold his company to Facebook in 2014.
But without knowing what the foundation holds, one can only speculate on what accounted for its performance.
More than 90 percent of the foundation’s assets are in donor-advised funds, Carson said. These are individual accounts held at a public charity — usually a community foundation, university or nonprofit set up by a brokerage firm.
Donors get a tax deduction when they put an irrevocable gift of cash or appreciated assets into the account. Donors can recommend how the money should be invested and which charities should get grants from their fund. These recommendations are usually followed if they meet the sponsoring organization’s guidelines. Large donors usually can have their fund managed by an outside investment adviser, with the sponsor’s approval.
The Silicon Valley foundation’s largest outside investment manager in 2016 was Iconiq of San Francisco, which has been closely associated with Zuckerberg and other tech titans. It got about $6 million in compensation from the foundation that year, according to an Internal Revenue Service filing.
Donor-advised funds are one of the fastest growing forms of giving. For fiscal 2016, six of the 10 largest public charities were “primarily built on donor-advised funds,” according to the Chronicle of Philanthropy. The Silicon Valley foundation ranked ninth on that list.
Unlike private foundations, which generally must distribute at least 5 percent of their investments each year to operating charities, there is no grant-making requirement for donor-advised funds. Critics call them rest stops for charity dollars.
“They are a warehouse of philanthropic wealth,” said Rob Reich, a political science professor at Stanford. “Donors have received all of the tax benefits of making a charitable contribution with very little of the social good that’s meant to be attached to it.”
They also have been criticized for their lack of transparency. Private foundations, such as the Ford Foundation, are required to disclose their investments in great detail, down to the value of individual stocks. Public charities do not have to make their portfolios public.
Brian Mittendorf, an accounting professor at Ohio State University, said it’s “crazy” that large sponsors of donor-advised funds “are not subject to the same disclosure requirements that private foundations are.”
Many sponsors of donor-advised funds say their annual distributions exceed the 5 percent required of private foundations. The Silicon Valley foundation’s $1.3 billion in grant-making last year represented almost 16 percent of its investments at the beginning of the year and 10 percent at year end.
It says it is the largest single grant maker to Silicon Valley charities, and over the past 11 years has donated $5.6 billion to nonprofits worldwide.
The African Advocacy Network, which provides social and legal-immigration services to people from Africa and the Caribbean throughout the Bay Area, got $120,800 from the foundation’s discretionary or endowment fund. The grant helped it move to a new office in the Mission District and expand services to the South Bay, its director, Adoubou Traore, said.
Immigration has been a focus for the foundation since 2008, and “they are really the only legal services agency in the Bay Area that has the linguistic and cultural competency to serve the growing African/Afro-Caribbean immigrant population in our region,” a spokesman said in an email.
Schwab Charitable, a large sponsor of donoradvised funds, said that more than 90 percent of contributions into donoradvised funds “are fully distributed to charity within 10 years.”
Its assets grew 31 percent last year to $13.2 billion, thanks to a strong stock market and a 150 percent increase in newaccount openings. Although its assets are roughly the same size as the Silicon Valley foundation, its client size is “radically different,” said Kim Laughton, president of Schwab Charitable. It has about 45,000 accounts with a median balance of $25,000. The Silicon Valley foundation said it has “2,109 funds of various types including donor advised, corporate advised, scholarship and designated funds.”
Schwab and Fidelity Charitable, another large donor-advised fund sponsor, both noted a surge in year-end account openings, likely related to the new federal tax law. Although charitable donations are still deductible if you itemize, fewer people are expected to itemize starting in 2018 because the standard deduction will roughly double, to $12,000 for singles and $24,000 for married couples, and the itemized deduction for all state and local taxes combined will be capped at $10,000.
Patrick Rooney, executive associate dean at the Indiana University Lilly Family School of Philanthropy, has estimated that the law could cause individuals to reduce their annual giving by $14 billion, or 5 percent. The richest 5 or 6 percent of households “are still going to itemize. They won’t be affected much, if at all. The next 25 percent, who itemized in the past and will now not itemize, their price of giving went up dramatically,” he said.
Charities that rely more heavily on their donations, such as social service and religious organizations, could see a bigger drop-off than ones that cater to the wealthy, such as universities and arts organizations, Rooney said.
Some donors may bunch contributions into years when they itemize and make no or fewer donations in years when they don’t. Donor-advised funds are a good vehicle for doing that.
Carson said he saw almost no impact from the new tax law at the Silicon Valley foundation.
The Silicon Valley Community Foundation says that over the past 11 years it has donated $5.6 billion to nonprofits worldwide.