Skip to comments.Investing Billions
Posted on 06/26/2006 2:14:54 PM PDT by BenLurkin
Were The Bill & Melinda Gates Foundation a public company, it would rank among the entire world's 400 largest by asset size--before getting a single dime of Warren Buffett's promised money.
But the $35 billion of assets listed on the foundation's latest financial statement, as of Dec. 31, is only one measure of its gargantuan magnitude. An active, aggressive player in financial markets, the foundation turns over the equivalent of its entire asset base on average about every two months. During 2005, the cash-flow statement shows, it purchased a staggering $250.7 billion of investments while selling $251.2 billion. Turnover at the foundation was at a far more furious pace than that at Berkshire Hathaway (nyse: BRKA - news - people ), the source of its new riches.
The Gates Foundations' 2004 federal tax return, the latest available, includes a 2,335-page list of investment transactions for the year.
Derivatives, pooled funds, securities lending, forward contracts, futures, fixed-income, stock investments: All are part of the mix that generated $1.4 billion in net investment income for the Gates Foundation during 2005, down sharply from the $2.6 billion produced during 2004.
Averaging opening and closing year asset values, the 2005 return looks to be about 4.9%. That figure suggests a conservative investment orientation and use of derivatives more for hedging than speculation.
The Gates contributed $443 million to their foundation during 2005, making for total income of $1.9 billion. The nonprofit spent $1.7 billion, all but $140 million in grants.
On Dec. 31, the investment portfolio was valued at $33.8 billion, less $4.3 billion "loaned under secured lending transactions." About $20 billion, or nearly 60%, was in fixed income, and only $9.5 billion, or barely a quarter, in equities--the class of investment that brought Bill Gates his vast wealth.
How much of that in Microsoft (nasdaq: MSFT - news - people ) stock? According to a list of holdings with the 2004 tax return, not one share. The biggest stock holdings as of Dec. 31, 2004, were: BP (nyse: BP - news - people ), $263 million; Merck (nyse: MRK - news - people ), $204 million; Costco Wholesale (nasdaq: COST - news - people ), $186 million; Exxon Mobil (nyse: XOM - news - people ), $164 million; and GlaxoSmithKline (nyse: GSK - news - people ), $160 million. It is not known whether any of these stocks are still part of the foundation's portfolio.
The 2004 federal tax return lists investment management fees of $41.5 million against end-of-year investments of $35 billion. That works out to fees of barely 1 basis point--1/100 of 1%--a fraction of the cost at even the most frugally run index mutual funds.
As a tax-exempt organization, the Gates Foundation pays no income taxes. But federal law does assess a small excise levy. How small? In 2005, $14.8 million--about four days of investment income.
I for one am tired of paying the taxes such 'charities' avoid!
It is unbelievable that they turn over the entire asset base every 2 months. Day trading with $35B???
This amount of money "doing good" is scary. It could end up with a bad case of Ford Foundations' Syndrome.
This outfit spends a great deal more each year on third world health and education programs than UNESCO (and that was BEFORE the Buffett funds). I'd a lot rather give a tax break to a private organization like this one, which is undoubtedly getting a lot more done for each dollar it spends than any UN agency, than have our tax dollars going to fund the UN's endless stream of corrupt boondoggles (of which UNESCO represents only a small portion). Let's work on getting the US out of the UN first, and later we can worry about whether or not this sort of private philanthropic organization should be tax-exempt.
William P. Barrett needs a remedial math course. $41 million is a little over 1/10th of 1%, not 1/100th of 1%.
The road to global hell could end up very well paved with such expensive good intentions.