Gates Foundation alters financial structure

The Bill & Melinda Gates Foundation is reorganizing its financial structure to separate its investments from its grant-making work, seeking to avoid potential conflicts of interest between the two activities.

The Gates Foundation also has decided it will complete its work within this century, rather than be a permanent institution.

As part of the reorganization to be announced today, the foundation will place its estimated $31 billion in assets into the Bill & Melinda Gates Foundation Trust, which also will also receive the annual portions of investor Warren Buffett's gift, estimated at more than $30 billion. The trust will hold its diverse portfolio of 60-some investments, including shares of Berkshire Hathaway, Four Seasons Hotel, Merck and other companies.

Taking effect in January, the reorganization makes the Bill & Melinda Gates Foundation a separate legal entity for philanthropic activities. It will employ the foundation's more than 300 workers and include IRIS Holdings, the Gates Foundation affiliate that owns the downtown Seattle property where its future campus is being built.

"One is all about growing money," said foundation spokeswoman Monica Harrington. "The other one is all about conducting programmatic work."

The growing assets of the world's largest foundation, and where the Gateses choose to invest them, have raised questions about the foundation's ability to influence all sorts of different industries, especially with an infusion from Buffett that effectively doubles its resources.

Some investments, such as pharmaceutical companies, are in areas the foundation also deals with through its grant programs, which support vaccine development and distribution.

While the Gates endowment had been managed independently from its grant programs, creating a trust for investments will make the separation more clear, Harrington said.

When Buffett announced his gift in June, he agreed to advise the foundation on strategy and direction, but preferred to focus his investment energies on his own company, Berkshire Hathaway. Both Gates and Buffett have vowed to give away their fortunes.

As the Gates Foundation formally divides its investments from its operations, Buffett will serve as a trustee of the foundation, but he won't play a role in the trust, Harrington said.

The trust will be managed by Michael Larson, the investment manager who has overseen the Gateses' personal wealth and the foundation endowment for years.