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Fund Advisors Formalize Charitable Donations

Amid growing allegations of fund advisory personnel accepting lavish gifts, parties and even midgets, it's refreshing to see a new entrant to the fund industry promising to donate dollars to charities.

The initial July 18 registration statement for The Giordano Fund is pretty typical of a new mutual fund being filed by a recently registered investment advisor. The big difference is in the reference to the 1% annual management fee that Giordano Asset Management of Annapolis, Md. will charge for advising the fund, if only because Giordano won't be keeping the entire amount. The fund advisor promises to donate to unspecified charities 10% of the net management fees it earns on the fund once assets eclipse $15 million.

While this new equity fund doesn't bill itself as a socially responsible fund, it does have a defined socially responsible philosophy that is articulated in the fund prospectus: "...The advisor intends to take a proactive role to make a tangible positive contribution to society and that of future generations."

Giving Back

"In all aspects of our business, we try to give back by donating time or money," said Joseph A. Giordano, president of the advisory firm, who also serves as president of Harbor Discount Investment Corp. "We thought this was an opportunity to donate money. It's something we strongly believe in." Giordano explained that it was his late grandfather whose philanthropy in his twilight years inspired him. "He gave a lot to charity and got a lot back," he added.

According to Giordano, right now he is focused on getting money into the fund. At some point, he will consider which charities to donate to, and may eventually designate that responsibility to the fund's board of directors. "We'll unbiasedly look at everything," he said.

Investment management firms aren't necessarily shy about making hefty donations to charitable organizations, political leaders' election/reelection campaigns and institutions of higher learning. It's just that few do so amid a lot of fanfare.

Many donate dollars to sponsor athletic events such as golf tournaments, said Phyllis Bernstein, president of Phyllis Bernstein Consulting of New York, which works with financial advisers who are CPAs. And philanthropy is rampant during the holidays when financial institutions' clients often receive cards advising that a donation was made to a specific charity on their behalf, she said. Many investment firms also pressure their employees to support a pet charitable project that the firm's upper management has thrown its weight behind.

"More and more people are saying, we're good citizens," she added. But, she noted, it's rare to see a mutual fund stipulate making a charitable donation from its management fee.

Indeed, it's rare to have a fund advisor make a firm commitment to donate to a charity or two, although individual executives or owners of the firm may make personal donations. "It's certainly an anomaly," said Jeff Keil, vice president, Lipper. He pointed to the philanthropic culture of Calvert of Bethesda, Md., which, through organizations, including the Calvert Foundation, makes regular donations to social organizations, community groups and other causes.

Another exception with a bit of a spin is the California Investment Trust Fund Group of San Francisco, a complex of 12 mutual funds managed by CCM Partners. According to the funds' most recently filed prospectus, "the manager may, out of its own monies, make cash contributions to tax-exempt charitable organizations that invest in the funds." A call to CCM Partners for comment was not returned.

Those fund advisors that do make philanthropy a regular practice usually possess a certain cultural belief that embraces the concept of helping others. One such firm is Houston's Bridgeway Capital Management, which manages the Bridgeway Funds.

Formalizing the Formula

Bridgeway does not donate a portion of its funds' management fees to charity. Instead, it takes a more holistic approach to philanthropy. "We give away 50% of the profit of the firm each year," said Mike Mulcahy, partner with Bridgeway Capital. That longstanding practice is now being formally written into Bridgeway's amended by-laws.

While he wouldn't specify the exact amount Bridgeway donates, he noted that the amount is "over seven figures" and has gone up every year as the firm has grown. Bridgeway, however, does not market its mutual funds under that charitable premise, nor does it openly disclose the charities to which it contributes.