Private foundations are prohibited from investing their assets in such a manner that risks the foundation’s ability to carry out its charitable intent. Extreme positions and investments that are speculative in nature are not appropriate for foundation investments and may result in excise taxes being levied.

While some types of investments are subject to higher scrutiny, they are not strictly prohibited. Rather, the investment portfolio is viewed as a whole, and specific investments are viewed in relation to the entire portfolio. Foundations that follow prudent investor rules should not have any issues.

Foundation Source does not manage assets nor do we provide investment advice, but we work with clients and their advisors to help them fully understand these rules.

Types of investments requiring close scrutiny include:

  • Trading on margin
  • Commodity futures
  • Working interests in gas and oil
  • Puts, calls, and straddles
  • Purchase of warrants
  • Selling shares short
  • Junk bonds
  • Risk arbitrage
  • Hedge funds
  • Derivatives
  • Distressed real estate
  • International equities in third-world countries