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| Best Practices: Philanthropy |
Controlling Interest
Melissa Phipps
09/01/2005
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After the gift is made, Winklevoss will act as monitor,
aggregating account and performance information and reporting it to the charity,
along with any breeches of the agreement, such as an investment in a forbidden
asset class. Winklevoss also serves as a go-between, acting on the charity’s
behalf should conflicts arise. Choate’s Courcey says that outsourcing conflict
management to Winklevoss is a primary benefit. “If the account is bleeding
money, Winklevoss handles that. The school does not have to have an
uncomfortable conversation—Winklevoss does,” he says. “This is important,
because we have to manage donor relationships.”
| “I think a lot
of people would like to
get more involved with philanthropy, but just writing a check and handing
off the money feels
sort of empty.” | Winklevoss charges a fee
based on a sliding scale according to the amount under management, up to 75
basis points. Because of this cost, charitable institutions have suggested that
the program is best suited to donors giving upward of $250,000; accounts,
however, can be established for much less. In fact, in an effort to widen the
scope of appeal to charities with larger bases of donors giving smaller gifts,
Winklevoss is working on an altered version of the program that could attract
donors giving as little as $10,000.
The company has moved to patent and
trademark the DMI Account to prevent other firms from offering the same
administrative services, but Rakov admits, “We do not intend to limit or
prohibit any charity from offering this program.” Winklevoss will license it to
eligible nonprofits on a no-fee basis, while requesting that charities outsource
administrative services to the firm.
The DMI Account strategy seems
tailor-made for a hot-hand fund manager or investment professional confident in
his or her own financial prowess. Even hedge fund managers are authorized to
keep donated assets in their own funds, according to Rakov, as long as they
comply with the IRS rules on self-dealing—generally meaning the donor cannot own
more than 5 percent of total assets in the fund and is not collecting fees for
managing the donated funds.
Whether the DMI Accounts will be widely accepted
remains unclear. At charitable institutions such as Cornell, however, the gift
is far more important than the means of giving. “Administratively, [DMI
Accounts] are more difficult than putting the money into your own fund, but the
question is: Would we get the gift otherwise?” Cornell’s Murphy posits. “Giving
is becoming more complex these days, and the more vehicles we have to meet a
donor’s objectives, the better off we are.”
Just a few months into managing
her account, Hafleigh is thrilled with the results. Working with the school has
given her a sense of purpose in the wake of her daughter’s death. “I think this
is the most positive thing way we could have dealt with this situation,” she
says.
Melissa Phipps, based in Jersey City, N.J., is a senior correspondent for
Worth. Illustration by Jim Frazier
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