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  • 1.  Gift of Private Equity basics

    Posted 01-13-2024 06:31 AM

    I was asked about parameters that might apply to a gift of private equity.  We do not have one pending, so this is simply information gathering at this point in time.  By private equity, I mean, pooled private equity funds or limited partnerships that are not readily marketable shares.  I'm interested if you have your own definition of "private equity".  What rules/best practices do you follow?

     

    The most basic guidance I've heard on this is that these are assets, so worth considering as gifts.  Additionally, it's important to have standards around the minimum value accepted, what the process for acceptance would be, guidelines on valuation, etc. 

     

    I found a donor story on such a gift from UD Southwestern Medical Center, https://engage.utsouthwestern.edu/pages/stories/donor-story-pfau-and-jones, but I don't have a specific there to ask.

     

    Do you have any experience with this, learnings, or guidelines for your institution?  I look forward to learning more.  Thank you!

     

    Meg Tallman
    (she/her)
    Senior Director, Gift Administration and Data Management

    University of Delaware  |  Office of Development & Alumni Relations
    83 East Main Street, Third Floor, Newark, DE 19716

    302-831-2308  |  www.udel.edu/alumni-friends  


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  • 2.  RE: Gift of Private Equity basics

    Posted 01-13-2024 07:04 AM
    Meg, while these are not terribly common forms of gift conveyances, they are giftable, countable, and deductible!

    Any proposed gift of this nature requires convening the full Gift Acceptance Committee before gift acceptance. Much due diligence is required. Counsel and the CFO specifically will want to evaluate risks and liabilities given the often difficult nature of liquidation. I recall a proposed gift of this nature years ago at Duke, where our investigation uncovered an LLC within the asset mix that violated Duke's ethical standards. We refused the gift.

    The CASE Standards don't specifically address private equity contributions or LLCs (I don't think so, anyway). However, they do discuss donations of closely held stock. You should refer to those guidelines (see page 273 in particular) as they apply to these gifts, too.

    Obtaining a bookable value can sometimes be difficult, as mentioned by CASE. In many instances, I have observed an organization withhold any counting at all until the asset is sold. One of my clients had previously accepted two similar gifts years before and counted them in a campaign - but 15 years later, the assets hadn't been liquidated. So, the gifts did very little to benefit the organization. Therefore, many organizations will record a placeholder value of $0.01 and only count the gift after liquidation.

    If your GAC decides to accept the gift, they should also determine whether to count anything at the time or wait until the property is sold. If the decision is made to count something now, I urge a treatment similar to what CASE discusses for gifts of intellectual property and patents:

    "While permanent donations of intellectual property and patents can be tax-deductible, their value to the qualified recipient organization might be impossible to predict and will rarely equal the deduction a donor might be able to claim. Neither, in fact, may result in any actual or realized value to the organization. A donor's appraised value should never be used when determining the value an institution uses for counting purposes."

    John

    John H. Taylor
    Principal
    John H. Taylor Consulting, LLC
    2604 Sevier St.
    Durham, NC   27705
    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987




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  • 3.  RE: Gift of Private Equity basics

    Posted 01-13-2024 07:14 AM

    Thanks, John.  Very helpful! 
    The valuation advice is logical, and it would temper the desire to "count" some valuation of the gift within the fundraising period the private equity is obtained. 
    If anyone has sample standards that their institution uses with their Gift Acceptance Committees for this sort of thing, I'm very interested. 

    --Meg

     




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