Donor-advised funds are gaining in popularity, and a growing number of them are offering alternative investment options as a way of attracting affluent investors. The Wall Street Journal reports that the funds, most of which are offered by charities formed by big firms such as Fidelity Investments and The Vanguard Group, are attractive because they provide investors with an immediate tax break as well as play on their need for philanthropy. So successful are they in their quest that the largest among them have seen AUM grow by 22% this year to about $15.5 billion. While they bring in more investors by cutting fees and lowering minimum investment amounts, these funds – some of which are run by smaller foundations – believe they can catch the big investor fish with the bait of hedge funds and private equity options. In fact, The Greater Kansas City Community Foundation has included funds that invest in HFs as an option, and the California Community Foundation has increased its allocation to alternative investments and may even begin offering private-equity investments. One sticking point with the alternatives, reports The WSJ, is that while many of the donor-advised funds are looking to lower fees, adding alternative investments may actually bump them up. Now fees range from an average of .079% at Vanguard to 2.2% for those with alternatives options. These donor funds are not only on the giving end of hedge funds. For the first time, the Vanguard Charitable Endowment Program has accepted hedge fund shares contributions, according to The WSJ.
