Oracle launch Endowment Product
Oracle is spearheading an innovative new fund-raising initiative that is thought to be the first of its kind in the charity sector
The Oracle Endowment Loan programme gives Oracle the security of long term funding for its research projects through interest free loans from its supporters.
Oracle’s CEO, illness Anthony Sykes, stuff says “We believe this is the first of its kind in the charity sector and we are proud to be pioneering a new form of investment for our supporters. We are asking those supporters who are in a position to help us to find out more and get involved.”
Oracle is being advised on the arrangements by Bates Wells Braithwaite, a leading firm of charity and social finance lawyers.
BWB partner, Philip Kirkpatrick says “This programme offers a great opportunity for major supporters to get their capital working for their charitable causes. It enables those who do not yet want to make a major donation to nevertheless make a hugely significant financial contribution to the charity and be more deeply engaged in its work.”
We asked Oracle CEO, Anthony Sykes to explain the detail of this new initiative:
This is an exciting initiative – why has Oracle set this up?
We believe that charities like Oracle Cancer Trust need to be more responsive to their supporters. At the same time we recognised that some of our supporters would prefer to lend us money rather than donate it outright and we wanted to establish an efficient means for them to do this. Oracle also needs to try to match the tenor of its financial commitments to the researchers with the predictability of its own income over time. The nature of research is that it needs time and most of our projects need a three-year timespan to gain meaningful results, so the benefit to Oracle is the certainty that we can support our research projects with the security and predictability of long term funding.
What is the benefit to your supporters?
There are supporters who have access to funds, which they would like to use for important research, but, for one reason or another, are not in a position to donate the money outright. This Endowment Loan fund provides them with a means of financially supporting Oracle’s projects, following their progress over a five year period and receiving the capital back at the end of the period.
How does the Endowment Loan programme work?
The Oracle Endowment Loan means our supporters provide us with a five-year loan, that can be made either on an interest free basis or interest bearing basis and invested through an independent fund manager to create an endowment fund. Oracle receives an annual 4% return on the interest free loans. Under the interest bearing loans, that 4% (plus a 2% per annum final payment made at the end of 5 years) is paid to the lenders. We hope that lenders using the interest bearing loans will donate their interest payments to Oracle using Gift Aid which gives them tax relief on the payments if they are UK tax payers.
What is the minimum loan amount required?
In order to minimise the administrative burden, the minimum loan amount is £25,001.
What is the total amount you are hoping to raise?
Oracle’s Trustees have already committed £125,000 and for the first close, we are aiming to raise a minimum of £300,000 to £500,000. We will have further closes each year with a view to increasing the overall loan fund to £3m, which would provide predictable funding for almost a quarter of Oracle’s total research projects.
What interest will Oracle receive?
Oracle will receive an annual 4% return from interest free loans and the same from interest bearing loans where the interest is donated back to Oracle. All donated sums from UK individual tax payers will be uplifted by Gift Aid.
When does the loan programme close?
It is currently expected that the first closing of the Endowment Loan programme will take place on 31st March 2015.
Do you have any current Endowment Loan providers who I could talk to about this?
Yes, the Trustees of the Oracle Cancer Trust have committed to providing initial funding of £125,000 and if you would like to discuss this with me or any of the other trustees, do please drop me a line at anthony@oraclecancertrust.org
How much notice is required to withdraw the funds before the five-year period?
Supporters retain flexibility and discretion to terminate their loans subject to a minimum notice period of two years.
Which firm is managing the fund?
After careful consideration we have selected Sarasin & Partners as our Investment Manager.
Sarasin is a well known and highly respected fund manager with long experience in the charity sector.
What are the tax implications of this to the supporter? Is the loan eligible for Gift Aid?
The loan is not eligible for Gift Aid. However, lenders who are taxpayers in the UK may choose to receive the annual yield of 4% from the Investment Managers and then gift those distributions back to Oracle. Those donations could then be grossed up through Gift Aid.
What happens to the loan after the five-year term?
At the end of the term the loan is repaid to the lender. Alternatively if the lender would like to continue, another loan agreement can be put in place, or, if the supporter would like to convert the loan into a donation, that would be grossed up through Gift Aid and would remain in the Endowment Fund as permanent capital.
What safeguards are in place to ensure supporters are repaid?
If lenders choose to terminate their loans early, they will give notice to Oracle and at the expiry of the two year notice period, the lender will receive the net asset value of the investment portfolio that corresponds to the loan value that the lender originally provided. If there is a difference between the net asset value and the original loan amount, the lender agrees to accept that loss.
What is the risk to lenders?
The loans will be invested in a fund managed by Sarasin and Partners under an investment management agreement that cannot be amended without the approval of a majority (in loan in value) of the lenders. The aim of the investment managers will be to deliver a cautious 4% annual return and then be in a position to return the loan capital to the lender (plus 2% per annum on interest bearing loans) at the end of the loan term. Any increase in the value of the fund then belongs to the charity.
If the investments do not deliver the necessary return, lenders run the risk of getting less back. If the value of the invested fund is less on the repayment date than the total loan sums invested plus accrued interest due to the lenders, each lender will receive only his share of the value of the investments at that time, proportionate to his loan amount and interest entitlement.
Who should I contact for further information?
We would be happy to answer any queries you may have.
In the first instance please contact me –
Anthony Sykes, CEO, Oracle Cancer Trust by email anthony@oraclecancertrust.org