You may have noticed that there seem to be fewer open grant rounds this time of year. You’re not missing things; it’s true. Fifteen years of grants data, now readily searchable in GEMS Funding Insights, confirms that numbers of open grant rounds (those with application forms and hard due dates) typically take a dip in spring.
If you’re not already, now is a great time to look beyond open grant rounds to Private Ancillary Funds (PAFs), Donor Advised Funds (DAFs) and Public Ancillary Funds (PuAFs), and consider how you might reach out to the families and individuals behind them to begin a conversation.
For those new to structured giving vehicles, the acronyms PAF, DAF and PuAF may be confusing; “What is a PAF?” and “How can we get funding from a PAF?” are two of the most common questions we are asked at Strategic Grants. For those already familiar with PAFs and PuAFs, we’re also being asked how they’re different or the same as Donor Advised Funds.
It’s important to get this straight, and it needs some unpacking. So, let’s get into it…
What is a PAF?
A PAF is a charitable fund created and controlled by an individual, family, or organisation. The ‘private’ aspect means that only those directly involved contribute funds and make decisions around investments and distributions to non-profits (though they may choose to vest decision making with a nominated corporate trustee).
A PAF can only make grants and donations to Deductible Gift Recipient Item 1 (DGR1) charities and is not permitted to carry out charitable programs itself. Ongoing contributions to the PAF can only be made by the founder and associated parties, such as family members.
Founders receive an immediate tax deduction on establishing a PAF. From the 2nd year after the PAF is established, it must distribute at least 5% of the market value of the fund’s net assets (as at the end of the previous financial year), and at least $11,000, or the total balance remaining. Dive deeper into the details at the ATO.
What is a DAF?
DAFs have been popular in the US and UK for some time and are now gaining popularity in Australia and New Zealand. They have been called the fastest growing form of philanthropy globally. This is due to the ease with which they can be established and the minimal administration involved. Again, they are a charitable fund, where an immediate tax deduction is applied on establishment, and the founding donors choose the direction of giving.
In Australia, DAFs can give to DGR 1 charities only. DAFs do not have a minimum annual distribution, which means founders decide when and how much they give.
Rather than being a stand-alone entity, DAFs are set-up as a sub-fund within a larger structure; a PuAF (hold that thought). The duties of Trustees and Directors are fulfilled by the PuAF under which the DAF is established, which means the people behind the DAF are free to focus on the difference they want to make, and identifying the organisations they want to partner with to achieve that.
What is a PuAF?
PuAFs are set up to accept money from the public to disperse to for-purpose organisations. In practice, a PuAF often acts as a pool for funds, collected through donations and/or through larger donors establishing their own sub-funds (AKA DAFs) under the umbrella structure.
Again, beneficiaries of PuAFs must be DGR1 charities. A PuAF is not required to make a distribution until its 5th year of operation, must distribute at least 4% of the value of net assets, and at least $8,800. Fact check those details with the ATO.
To support those with an interest in philanthropy, PuAFs are often established by investment and wealth management advisory companies, offering a vehicle within which multiple clients can establish sub-funds. The advisory firm takes care of all compliance requirements and manages investments, and supports sub-fund founders to achieve their giving objectives.
How much do PAFs, DAFs and PuAFs give?
In dollar terms, based on the latest available reported statistics, PAFs made just under $800 million in distributions, and PuAFs distributed $487 million, in the 2022-23 financial year. For PuAFs, that was a notable distribution increase of 22% on the previous year.
Both PAFs and PuAFs have been growing in numbers and net assets for some time. There are now 2,200 PAFs and over 1,400 PuAFs set up to distribute funds in Australia. There are no publicly published figures available on the numbers of DAFs or sub-funds within PuAFs, but it’s safe to assume those numbers are growing rapidly. At the end of the 2022-23 financial year, PAFs held $10.65 billion in net assets and PuAFs held $4.7 billion.
PAFs and PuAFs clearly represent significant opportunity for Australian for-purpose organisations, now and into the future. Additionally, the intergenerational wealth transfer currently underway is also expected to bolster PAF and PuAF giving; over the next 20 years a total of $5.4 trillion will be handed on.
Currently, the Australian Government is considering a suite of reforms as part of their commitment to double philanthropic giving by 2030. Proposed changes include aligning the annual distribution rate between PAFs and PuAFs, increasing the annual distribution rate to 8% of net assets, and renaming ancillary funds to Giving Funds. These changes may or may not go ahead. Time will tell.
How do charities engage with PAFs, DAFs and PuAFs?
Some PuAFs and a small number of PAFs operate open grant rounds. The majority of PAFs and PuAFs, and therefore DAFs, however, do not have a standard application process or publicly available guidelines.
Building relationships of trust with ancillary fund trustees, and the intermediaries and wealth managers who support the administration of these funds, is critical to your success. Here’s how to get started:
- Get ready internally. Your first step should be ensuring that your organisation has a current list of funding priorities that align with its purpose and mission. Funders will often have an expectation that the programs or needs you are seeking funding for are well designed and developed, so investing time in developing strong project plans before you commence engagement will help to ensure you do this effectively.
- Do your research. Next is prospect research to identify the funds that align with your organisation’s mission, values and priorities. Not all ancillary funds will have websites with clearly articulated goals, so you may need to explore their funding history to find out which are strong prospects for your organisation.
- Leverage existing networks. Through prospect research you can also identify who is involved with each fund. Circulate these names with your board and senior leaders, check to see if they are in your customer relationship management system (CRM), and utilise LinkedIn for any connections – a warm introduction or existing relationship is ideal.
- Connect with fund managers. If a wealth manager or other intermediary is the key contact (possibly the only known contact), look at their website to see if they communicate preferences for engagement. Some trustee companies have a form you can fill out or are happy to receive concise summaries (1-2 pagers) detailing your organisation’s goals and key priorities for funding. If not clear publicly, contact the intermediary to find out how you can best engage with them and the fund/s they manage.
- Clearly communicate shared alignment. Whether contacting the founder, another trustee or an intermediary, be sure you can outline how your organisation’s priorities align with that of the fund. When an opportunity to present a proposal arises, write to inspire and evoke confidence in your organisation.
- Be patient. Relationships can take time to build, and ancillary funds, and DAF sub-funds, can make decisions at different times throughout the year.
- Steward well. PAFs, DAFs and PuAFs present significant long-term, high-value opportunities in the for-purpose sector. Stewardship is crucial for growing relationships and ongoing success. Engage in meaningful ways, where appropriate.
Where can I find out more about PAFs and PuAFs?
Not all PAF and PuAF information is publicly available, but if you’re looking for one grants database that gives you PAF and PuAF information PLUS all other available funding opportunities from trusts and foundations, health and medical research funders, corporate foundations, local, state and federal government grants and tenders, and international funders that give to Australian charities, GEMS is it.
Every customised GEM Portal includes PAFs and PuAFs matched to your organisation. Plus, for those already savvy in this space, all PAFs and PuAFs are searchable in your GEMS Funding Insights module, and complete list of PAFs and PuAFs is also available in a separate tab that can be activated for you at any time.
For a guided tour of GEMS, reach out to book a demo.
Already a GEMS subscriber? Contact our Customer Experience Team at any time, to have your PAFs List switched on: [email protected]