Private foundations, given their charitable orientation, are often overlooked in the competitive arena of investing. However, these firms control vast fortunes that are strategically deployed to enact social influence over a long duration -- often in perpetuity. Private foundations in the U.S. control $798.2 billion of assets (as of 2013), according to the National Center for Charitable Statistics’ latest data.

Understanding the strategies and challenges of achieving fiscal security to further their mission is key to this subset of institutional investors. In the United States, private foundations are required by the Internal Revenue Code section 501(c)(3) to pay out a minimum of 5 percent of their investment assets in order to avoid paying taxes. This mandatory payout rate defines the target rate of returns for foundation investors and directly drives their investment strategies.

The size of private foundations vary greatly. The National Center for Charitable Statistics estimates that only less than 10 percent of private foundations manage more than $10 million. In part one of Top 20 Private Foundations In America, Trusted Insight profiles 10 prominent multi-billion-dollar charitable organizations established by the founders of America’s largest and oldest companies of the modern age, such as Microsoft, Intel, Hewlett and Packard and Ford Motor Company. Here’s what they do and how they manage their money.

 

Bill & Melinda Gates Foundation
Founders: Bill and Melinda Gates
Year Established: 2000
Chief Investment Officer: Michael Larson
AUM: $39 billion

The Bill & Melinda Gates Foundation is the largest private foundation by assets under management in the United States. The foundation works with partner organizations in over 100 countries to address issues in four particular areas: poverty alleviation; health science and technology; education improvement; and global policy and advocacy. In 2006, Warren Buffett made a hefty donation of $30 billion to the foundation. Since then, the foundation has been able to save the lives of 122 million children, 86 percent of whom now receive basic vaccines, the New York Post reported.

The foundation's most recent philanthropic activities include a $279 million investment in the Institute for Health Metrics and Evaluation to expand its global impact for the next decade. An October 2016 press release indicates the foundation will proceed with a $1 billion investment in British research and innovation programs.

Michael Larson was named chief investment officer of the foundation in 1993. Larson takes a diversified portfolio management approach by investing in alternative assets across geographies. The Foundation’s Trust, which manages its assets, is heavily invested in public equities, which accounts for 63 percent of the total portfolio, according to its 2015 financial statement. The trust also holds a sizeable debt allocation comprising more than 32 percent of the total portfolio -- much of that residing in U.S. government bonds.