Goldman Sachs has provided Reuters with a copy of the Goldman Sachs Foundation’s 2008 tax return. Why the NYT didn’t just put it online I have no idea, but in any case here it is, all 297 pages of it.

The bottom line is that the Goldman Sachs Foundation did very badly in 2008. Here’s the way it’s all summed up:

The fund started the year with $269 million in assets, and ended with $161 million. The amount it made in charitable disbursements was $22 million (that’s the last number on line 25 of the first page), which means that the charitable disbursements aside, the fund managed to drop by $85 million. That’s 32% of the amount it started the year with, and almost four times the amount of money it actually gave to charity.

The big losses are a capital loss of $15 million on the sale of assets, and a whopping $75 million unrealized loss on investments. And then, just for good measure, we find out on page 68 of the PDF that the foundation paid Goldman Sachs Asset Management $3,864,540 for “investment management”. Gee, thanks for the service, guys.

If the Goldman Sachs Foundation put all its money in cash, earning 0%, and wrote checks over the course of the year totalling $100 million, it would have done better than this. Instead, it managed to give away less than a quarter of that, to recipients like the Foundation for Teaching Economics ($333,333) and $2,550,000 to the Institute of International Education “to support the expansion and enhancement of the Goldman Sachs Global Leaders Program in building a strong platform for the Program’s 10th anniversary activities in 2010.”

The Goldman Sachs Foundation also spent $230,000 on various Davos-related donations, in the form of gifts to the Schwab Foundation for Social Entrepreneurship and the World Economic Forum itself.

Maybe that’s what Lloyd Blankfein had in mind when he talked about doing God’s work.

Geraldine Fabrikant gets her hands on the 2008 tax filing for the Goldman Sachs Foundation today, and it’s pretty astonishing stuff:

The latest tax filing for Goldman Sachs’s foundation is as thick as a phone book. The list of trades is more than 200 pages, single spaced. Goldman, it seems, invests like no other, even for its own charity.

“I have never seen anything like it,” said Verne O. Sedlacek, president of Commonfund, when shown the 2007 filing, which was nearly three inches thick. He has a good overview from the Commonfund, which manages more than $25 billion for universities, foundations and other not-for-profit groups.

What good does all this extreme trading do? Not very much, it would seem, according to Fabrikant’s numbers:

• Goldman has given $501 million to the Goldman Sachs Foundation since 1999
• The present size of the foundation is $404 million
• The foundation gave away $12.6 million in 2007 and $22 million in 2008.

Goldman doesn’t reveal the foundation’s investment returns, but clearly they’re negative: the amount of money in the foundation is lower than the amount donated to it, even after accounting for the sums it’s given away.

What’s more, Goldman seems to be giving away only the bare minimum of the foundation’s assets each year: just 5%, the level below which the foundation would lose its charitable status.

I’m going to take a wild guess here and say that the foundation’s counterparty, on its phone-book-sized list of trades for just one year, was always or nearly always Goldman Sachs*. And when Goldman Sachs trades with anybody, be it a client or the Goldman Sachs Foundation or anybody else, Goldman Sachs makes money.

Meanwhile, the foundation itself, as we’ve seen, has been losing money.

And who are the charitable recipients of the foundation’s funds? Entities like the Asia Society, on Park Avenue, which is a talking shop where Goldman bankers can schmooze important international clients. Or big universities like Johns Hopkins and Duke, which take charitable gifts and keep them in the market by adding them to their endowments and investing them rather than spending them.

All in all, the single biggest beneficiary of the Goldman Sachs Foundation would seem to be Goldman Sachs itself, while the amount of money which trickles down from it to genuinely needy charitable cases is minuscule. Goldman should turn its foundation into an arm’s-length institution, charged with giving money where it can do the most good, and allowed to give much more than 5% of its total assets if it sees the need to do so. Because right now the foundation looks mostly like an exercise in self-dealing.

Update: One other thing: why on earth couldn’t the NYT have either linked to the tax filing, or put it online? Most annoying.

*Update 2: Goldman phones to say that the vast majority of trades at the Goldman Sachs Foundation are not with Goldman Sachs.

Paul Steiger’s salary in 2006, his last full year as editor of the for-profit WSJ: $547,692

Paul Steiger’s salary in 2008, his first full year as editor of the non-profit ProPublica: $570,000

Update: ProPublica’s Dick Tofel points out that Steiger did get options when he worked for the WSJ, which brought his total compensation comfortably into seven figures. Steiger gets no bonus at ProPublica. Not that he really needs one, given that he’s earning almost $50,000 a month.

One of the Philanthrocapitalists (I believe it’s Michael Green, unless Matthew Bishop is prone to referring to himself in the third person) attempts a defense today of the $1 million salary being paid by the Gates Foundation to its new CEO, Jeff Raikes. It’s pretty weak stuff:

A cheap bad leader is much worse than a well-paid good one. Better pay could, with care, attract better leaders to the non-profit sector and enable valuable donations to be better used.

Well, yes, and a well-paid bad leader is much worse than a cheap good one. Is there any indication at all that increasing the pay of non-profit leaders increases their performance? I doubt it. (How well-run is MSF? How well does it pay its executives? Now, how about the Getty Foundation?) Unless and until such evidence emerges, this sort of thing rings hollow:

According to the sources quoted by the Chronicle, Raikes did not even want a salary (his predecessor and fellow Microsoft veteran Patti Stonesifer took no money) but the Foundation decided that paying the CEO was a point of principle.

Does Gates really think that Raikes will perform better now that he’s being paid a seven-figure salary? I very much doubt it. Instead, the salary just serves to underline Raikes’s position as a mere employee. As our blogger notes, the guy in charge is Gates, not Raikes, and the CEO position is clearly subservient to that of billg. If Raikes were working for free, he would surely feel more ownership of the Foundation than if all of his actions are bought and paid for.

What’s more, at a million bucks a year, Gates could have hired pretty much anybody he liked. If he wanted to demonstrate that the job would go to the best-qualified person, he could have found someone who was highly qualified, had a lot of leadership experience in the non-profit sector, and who wasn’t independently wealthy. Instead, he’s giving $1 million a year to a centimillionaire who doesn’t need the money and who joined Microsoft in 1981.

Why would he do that, beyond control issues? Bishop suggests that maybe he wanted to raise salaries all round — but it’s silly and anachronistic to assume that the CEO must always be the highest-paid person in any organization.

Bill Gates can and will, of course, pay anybody he likes however much money he likes. It’s his foundation. But let’s not turn his foibles into some kind of principled stand.

Lance Laifer is a good guy, with his heart in the right place and a history of raising millions of dollars for important causes. But I don’t think his latest idea is his best ever:

Hedge Funds vs. Malaria & Pneumonia is asking everyone in the hedge fund industry to wear blue jeans to work on November 2. The reason is simple. The two million children who die of pneumonia often turn blue when they get pneumonia. We believe that if everyone in the hedge fund industry wears blue jeans on World Pneumonia Day we will draw a massive amount of attention to the problem and encourage people all over the world to figure out how they can stop this massive killer of children. Surprisingly it is relatively cheap to diagnose and treat pneumonia (meds cost less than $0.50) and most pneumonia deaths can be prevented by vaccines, which are already on the market.

Wearing blue jeans to the office is an easy (and free) way to help change the world for the better.

Hedgies wearing blue jeans to the office because that’s the color that children turn when they die? On a scale from “ineffectual” to “downright offensive”, where would you put this one?

Pockets has a spectacularly good comment on my blog entry about the charitable status of private schools which would more than deserve elevation as an entry of its own were it not for the fact that (s)he has gone into even more detail here and here. The main insight is that the “top” schools tend to advertise themselves and compete on the basis of how well their pupils do in exams, what universities they get into, that kind of thing. And that they can boost those numbers substantially by giving scholarships and bursaries to super-smart poorer kids:

UK private schools are among the best schools on the planet, and I was lucky enough to attend one. Saying that they maximise profits isn’t saying that they’re manipulative or evil or bad (I wonder if this is what’s annoying people?). They’re staffed with many lovely, caring individuals (like lots of other profit-maximising companies!), and through scholarships/bursaries they offer a great trade to smart poor kids - we’ll give you an amazing education, if you allow us to charge other kids to sit next to you.

Given that the schools would do this even if they didn’t have charitable status, it’s not clear why we’re giving it to them. As Pockets writes:

If you wanted to convince me of a private school which is acting charitably, not profit-maximising, then you’d have to describe a system where pupils take the entrance exam - and then the low-scoring poor children are offered bursaries. That’s a school which is gambling on its ability to raise standards among disadvantaged kids. But no private school does that, and with excellent reason: the cost could be lower league table results for the school.

Matt Yglesias also makes a point about private schools which I should have made initially:

They’re certainly not charities. And as best one can tell, their main impact on the common weal is negative, drawing parents with resources and social capital out of the public school system and contributing to its neglect.

You’d have to believe that New York City’s public schools would be both better funded and free of this kind of nonsense if a larger portion of the city’s elite were sending their kids to them.

There’s an analogy here to the studies showing the beneficial effects of homeownership. The problem is that two effects get mixed up: on the one hand, people who own their own homes do tend to live better lives. But on the other hand, those are the kind of people who would probably live better lives anyway, and by moving away from rental neighborhoods they effectively ghettoize those left behind. Similarly with private schools, especially in areas where a high percentage of local kids gets educated privately (like where I grew up, in Dulwich): the local public schools can be very bad indeed, despite the huge number of rich and highly-educated parents in their catchment area. To put it in economist-speak, private schools inflict a negative externality on the quality of education in the neighboring state-run schools.

Incidentally, pace another comment in the original thread, Greenpeace is not a registered charity in the UK — at least the headline organization which most people think of when they think of Greenpeace, Greenpeace Ltd, is not a charity. Not everybody in the non-profit space is a charity, and there’s no particularly good reason why all private schools should be charities, either.

In the US, I’m still holding out hope that university endowments will be taxed unless they can demonstrate that they’re actually spending their money on the public good. Thanks to the philanthrocapitalism blog, I now discover that a similar move is now afoot in England, which has told two independent schools that they will lose their charitable status unless they start educating poorer kids as well as those of the rich. The whines from the head of the Independent Schools Council are not very moving:

Private schools were already providing a public benefit by educating children who would otherwise be in state schools paid for by taxpayers, he said…

Without private schools “the public would have to pay between £3bn and £4bn a year in extra taxes,” Lyscom said.

No one’s asking to abolish private schools, or even proposing that most of them lose their charitable status. They’re just asking that they do a bit more to earn it, which seems right to me. But as ever, there’s an endowment effect: it’s orders of magnitude harder to strip charitable status from an institution than it is to confer that status in the first place. So this is going to be a long, tough fight. But it’s one worth having.

Why is the Gates Foundation speculating in distressed UK equities? The foundation has received a lot of criticism for the way it invests, but put that to one side — it seems to me that charitable foundations in general should be pretty risk-averse, even when they have tens of billions of dollars. The Gates Foundation is praiseworthy in that it has a mandate to spend down its principal quite quickly. But as a result, its investment arm should be a boring place; it certainly shouldn’t be gravitating towards the riskiest parts of the capital structure of overleveraged retailers in overleveraged economies like the UK.

I suspect that the problem here is one of incentives, and that the people running the foundation’s money will get substantial bonuses if they take big risks which pay off. It’s time to find good fund managers who are dedicated to the stated aims of the Gates Foundation, and just pay them a flat salary (which can be quite large). Philanthropic foundations shouldn’t act like hedge funds, a few exceptions like TCI notwithstanding.