In our work with Private Ancillary Funds (PAFs), now officially transitioning to ‘Private Giving Funds’, we have found they don’t fit neatly into any single category of advice. They are not simply charity accounts, and they are not standard investment portfolios either., but rather complex vehicles where family legacy meets strict capital stewardship. Because of that, managing a PAF requires a type of discipline that looks quite different from how you would manage a typical private wealth pool.
We still see PAF investment strategies that are effectively repurposed high‑net‑worth portfolios, and while that can work in some limited cases, it often falls short. Managing the fund properly requires a more deliberate approach that balances values, granting commitments, long‑term sustainability, regulatory obligations and family governance.
PAF’s are not just another portfolio
From a trustee’s perspective, one of the defining features of a PAF is the compulsory annual distribution requirement. In Australia, that rate is currently 5%, with a move to 6% expected in the coming years, a change that materially increases the importance of liquidity and cashflow planning. Unlike personal or family investment portfolios, this distribution requirement is non‑discretionary. The capital must be available, on time, every year, regardless of market conditions.
Where the aim is to keep the fund going in perpetuity, these distribution requirements raise important discussions around return expectations. Annual granting levels, inflation, administrative costs and the long‑term purchasing power of the fund all need to be considered together. In practice, this often leads to the conclusion that a PAF needs to achieve ambitious long‑term returns to avoid gradually eroding its real value. Achieving this consistently places a premium on disciplined asset allocation and liquidity management and robust governance frameworks.
Values matter
The people who control a PAF often have deeply held views about the world they wish to support, whether that is education, healthcare, community development, climate, social equity, or religious or cultural causes. We tend to see a desire for these values to reflect not only where money is granted, but also how the corpus itself is invested.
Values‑aligned, ESG, and impact investing approaches have evolved significantly and are no longer synonymous with lower returns. A growing body of research suggests that integrating ESG factors can be a legitimate analytical framework for identifying long‑term risks and opportunities, rather than a purely ethical overlay.
For PAFs, this alignment can be particularly powerful. The fund can:
- Grant to causes aligned with the family’s mission, and at the same time
- Invest in businesses, assets, and themes that actively support similar outcomes
When designed thoughtfully, this approach gives families a practical way to express their values through both giving and investing, without automatically compromising long‑term financial outcomes.
PAF’s also allow families to bridge the gap between generations. We often see younger family members switch off when the conversation is purely about benchmarks and basis points. However, when the discussion shifts to impact-oriented investing, their engagement spikes, moving the meeting from a financial review to a forum for real debate about family values and what the fund stands for over the long term.
Research shows that next‑generation wealth holders are materially more likely to prefer investments that reflect social and environmental values, while still seeking competitive financial returns, and PAF’s provide a natural forum to integrate these perspectives.
The technical discipline you cannot skip
Of course, this only works if the math holds up. The reality of a PAF is that you are on a deadline every year and those annual distributions are non-negotiable. Without a rock-solid Investment Policy Statement (IPS) that accounts for liquidity and market stress, you risk being forced into ‘fire sales’ to meet your granting obligations. Intent without a disciplined framework puts the fund’s longevity at risk. Put simply, the fund needs to be liquid enough to meet annual distributions, diversified across asset classes and risk factors and compliant with Australian regulatory requirements.
The move to a 6% distribution rate increases pressure but the new suggested three-year ‘smoothing’ provisions offer a strategic relief valve, allowing families to average their giving over a rolling period rather than meeting rigid annual targets regardless of market volatility.
Granting must align with your investment strategy
Just as important as how a PAF invests is where it gives. Granting decisions should be coordinated with professionals who have the expertise to:
- Assess charity governance and effectiveness,
- Identify genuine impact versus marketing narratives,
- Guard against misallocation or fraud, and
- Ensure that funds reach organisations that deploy capital responsibly.
Investment advice and philanthropic advice should not operate in silos. A fund that invests thoughtfully but grants poorly (or vice versa) risks undermining its mission and legacy.
A PAF is about far more than meeting an annual giving requirement. At its core, it is a long‑term exercise in stewardship that decides how capital is preserved, invested and deployed in a way that reflects a family’s purpose over decades, and often generations. As a result, these funds naturally sit at the crossroads of several disciplines, including investment management, tax and regulatory compliance, family governance, philanthropic decision‑making and intergenerational planning.
Treating any one of these elements in isolation creates risks, as the reality is that they are deeply interconnected. Liquidity decisions affect granting capacity; investment strategy influences sustainability; governance shapes how future generations engage; and compliance underpins everything. When advice is coordinated properly, these moving parts work together: cash is available when it is needed, investments are aligned with both values and discipline, compliance issues are anticipated rather than reacted to, and philanthropic capital is deployed with confidence and intent.
To discuss how your Private Giving Fund is structured, invested and governed, and how to bring those elements together under one strategy, contact your William Buck advisor. The sooner these pieces are working as one, the better placed your fund is to protect its capital, honour its purpose and carry the family’s legacy forward.
