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How the Gates Divorce Could Impact their Philanthropy and Financials

Editor, TRANSFIN
May 4, 2021 2:23 PM 5 min read
Editorial

With great divorces comes great division of assets. 

Bill and Melinda Gates may be ending a 27-year-old marriage, but this raises questions about the fate of their 20-year-old offspring, the Bill and Melinda Gates Foundation, which has become the world's largest private philanthropic body with almost $46.8bn in assets. 

Bill Gates is the world's fourth wealthiest person and until now, Bill and Melinda Gates used to be the world's wealthiest couple with a combined net worth close to $200bn ($130bn + $70bn). 

Not only has the Gates Foundation been the vessel for their charitable initiatives, it has made significant contributions towards many developmental projects, particularly in third-world countries. Its scale, capital and entrepreneurial mode of functioning has redefined the way in which the world has come to measure the philanthropic pursuits of new-age wealthy donors. 

But even though the Gateses have pledged to give most of their fortune to philanthropic work, they haven't done so in entirety yet. And this raises questions about the Foundation's finances and future. 

Let us see how much the Gates Foundation has accomplished so far and what lies at stake for it at this point. 

The Endowment at the Gates

Every year, the Foundation gives away around $5bn, most of which goes into global health and developmental projects. Mr. Gates has also donated over $35.8bn worth Microsoft stock to the Foundation over the years. 

Although the Gateses are the chief donors and managers of their jewelled charity, it is the third trustee, Mr. Warren Buffett and his $31bn donation to the Foundation to-date which has especially stood out. One of the conditions that Mr. Buffett set for his donation was that the Foundation maintain its "charitable" status which is achieved only if it keeps donating an amount equal to 5% of its net assets from the previous year to its funds going forward. 

Source: NYT

Philanthropic Roster 

The Gateses were focused on funding immunisation campaigns in most of the developing world throughout the 1990s and 2000s. The Foundation has invested over $16bn on vaccine programmes worldwide, 25% of which is dedicated solely for GAVI (Global Alliance for Vaccines and Immunisations). It has also donated aggressively towards campaigns to fight AIDS, Tuberculosis and Malaria. 

Asia and Africa have historically been the main beneficiaries of the Gates Foundation's bilateral funding (directly from donor to recipient countries). In 2018, India was the top recipient nation of the Foundation's bilateral developmental finance ($27m), as per OECD data.

At a time when Western companies had stopped making vaccines because of limited profitability, the Gates Foundation helped incentivise them to create new business models for vaccine generation. The vestiges of these models, perhaps, aided with the recent coronavirus vaccination efforts in many of these countries. 

Speaking of coronavirus, the Gates Foundation was among the earliest responders to the fight against the pandemic when it announced cooperation with vaccine development, the COVAX initiative and the world's leading vaccine manufacturers. Most prominent among these was the Foundation's $150m guarantee (now increased to $300m) to the Serum Institute of India back in early 2020 to equip the world's largest vaccine maker with necessary production capabilities. 

Another beneficiary was BioNTech, the German company which partnered with Pfizer to make its COVID-vaccine. The company received a $55m equity investment from the Foundation in September 2019. 

The Foundation has specifically committed more than $1.75bn to support and fund programmes aimed at fighting the COVID-19 pandemic worldwide. It also supported Our World in Data, an open-access publication started by the University of Oxford, that has turned into a mecca of real-time data related to the pandemic recently. 

In fact, the reach and expanse of the Gates Foundation became difficult to ignore after the US exited as a member and contributor to the World Health Organisation, leaving the Foundation as its largest donor. A private foundation emerging as the top donor of a UN body was considered "transformational" and a defining point in the evolution of big philanthropy. 

Did You Know? Bill and Melinda Gates Foundation is one of the few charitable institutions which have a closure date. All of the Foundation's resources will be spent within 20 years of both their deaths, effectively closing the Trust then.

 

What Happens Now? 

Although both the parties have suggested that they will continue with their work in the Gates Foundation and they continue their "shared belief in its missions", many believe the expected rejig in their finances would have repercussions for the Foundation and its work across the world. 

The Gates Foundation is structured into two entities: the Trust, which manages the endowment assets and the Foundation which distributes money to the grantees. It is now unclear whether both former spouses will continue as trustees. 

Their roles within the Foundation would more or less be determined by the finances agreed under the divorce. There are too many uncertainties here. 

First, the absence of a reported pre-nuptial agreement makes it difficult to determine asset allocation, terms of their settlement and their future roles within the organisation. 

Second, Melinda Gates started an organisation called Pivotal Ventures in 2015 to pursue her own ideas, projects and investments. This has led to speculation about whether she might start her own charity independent of the Gates Foundation. 

If that happens, the Gates Foundation might face difficulty in executing projects without her direction or expertise. A few critics also consider her role to be pivotal in the gender equality initiatives supported by the Foundation, a cause that she has diligently pursued and helped prosper.

But she may not be the only one who could possibly break away. Bill Gates launched his own carbon-cutting startup business called Breakthrough Energy ventures, a $2bn fund aimed to battle climate change, a cause that is extremely important to him. 

Such diversion of philanthropic interests poses questions regarding the course of the Foundation's future.  One might expect a considerable shuffle in its mandates and commitments. 

If individuals rather than institutions play a more defining role in the philanthropic landscape, then personal affairs could trigger large societal ramifications, like undo and disrupt the work of an influential charitable foundation. Since charity began inside the Gates' home, one can only hope it is allowed to continue and bring light into other homes around the world. 

FIN.
 

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