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Wednesday, October 4, 2023

tata: Tata Trusts opts for endowment funding route

The Tata Trusts is establishing endowment funding entities along the lines of the US-based Burroughs Wellcome Fund that can invest in alternative avenues as they seek to increase the amount spent on philanthropy. This is aimed at reducing reliance on dividend income earned from Tata Sons and is the result of planning and discussion within the trusts, endorsed by the best legal minds in the country, senior executives close to the development said.

To this end, the Ratan Tata Endowment Foundation was created in September 2022, as ET reported earlier this month. The fund will hire top investment advisers and talent to run the institution, the sources said.

Ratan Tata, chairman of the Tata Trusts, did not respond to an email on the matter.

The Burroughs Wellcome Fund is an independent private foundation dedicated to advancing the medical sciences by supporting research and other scientific and educational activities. The foundation uses the investment returns to fund its charitable work.

The Tata Trusts are willing to increase funding for charities, but are limited to dividend income earned from Tata Sons, which also tries to cover any shortfalls through its corporate social responsibility (CSR) funds. Tata Sons is the holding company of the Tata group. Tata Trusts earned ₹267 crore as dividend income from Tata Sons in FY22.

‘Effective vehicle for non-profit organizations’
Tata Sons announced net profit of Rs 17,171 crore on total revenue of Rs 24,132 crore in FY22 on a standalone basis and has been focused on allocating significant capital for aggressive growth plans of some of the new businesses of the group.

Endowment funds allocate the largest percentage of their portfolios to alternative asset classes, such as hedge funds, private equity, and venture capital, in addition to real assets such as oil and other natural resources.

Endowment funds are not specifically regulated in India, said Anupam Shukla, a partner at law firm Pioneer Legal.

“The inherent structure of endowment funds and their governance models (professional governing board, transparent investment policies, etc.) help make them an effective vehicle for many nonprofit organizations to manage their funds,” Shukla said. . “If more and more companies choose to structure their philanthropic ventures through such endowments, we may see the use of such entities more regulated.”

Keeping the corpus intact ensures the longevity and sustainability of the fund, along with the causes it supports. This helps attract the talent and knowledge needed to make a real impact, according to legal experts.

“We have a number of clients who want to understand how to build ESG (environmental, social and governance) metrics into their organization and align them with their CSR obligations,” said Mallika Noorani, senior partner at law firm Parinam Law & Associates. “Having the fund set up outside of a corporate structure allows for the involvement of third parties who are aligned with the visions and objectives of the fund, which, in turn, allows for the creation of a sizable investment corpus.”

More companies are employing ESG-compliant modes of operation in India, in line with prevailing global standards.

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