November 9, 2006 | Read Time: 1 minute
Stanford University has secured a ruling from the Internal Revenue Service that allows its donors to invest their contributions along with the institution’s endowment.
Donors have good reason to want Stanford’s endowment managers to invest their gifts: Over the 10-year period that ended in June, Stanford’s endowment had annualized returns of almost 15 percent, nearly 5 percentage points higher than the returns on the typical charitable trust managed by Stanford, according to officials there.
Charitable trusts typically pay dividends to donors, with the remainder going to charity upon a donor’s death.
Thus, the better the returns, the bigger the dividend payments, and the more money left for charitable uses at the end.
But tax and legal considerations have long limited charitable-trust investments to a rather conservative mix of stocks and bonds.
The university last month received a private-letter ruling from the IRS that said it was permissible for the university to go beyond such limitations and invest charitable-trust assets along with its endowment assets.
Private-letter rulings apply only to the specific facts and circumstances of the organizations that seek them.
Stanford is the second institution known to have created such an arrangement for its donors. Harvard University pioneered the arrangement in 2003, when it received a similar ruling (The Chronicle, February 5, 2004).
Harvard University has received millions of dollars’ worth of additional donations as a result of its ability to offer the new investment option, according to Charles W. Collier, Harvard University’s senior philanthropic adviser.
