On the back of record profit so far this year, Goldman Sachs, the global investment bank, is starting a donor-driven philanthropy fund that aims to reach $1 billion over the next few years.
The fund, GS Gives, is initially focused on the firm's roughly 350 partners who will be strongly encouraged to donate a fixed amount of their compensation.
If each partner gives $250,000, the fund will begin with $87.5 million. Eventually the fund will be open to a larger group of Goldman employees. Goldman's asset management group will manage the fund for free.
The program comes at a time of tremendous wealth creation for Goldman employees. The firm is one of a few that has survived the meltdown in the subprime mortgage market, and it stands out among its peers in the amount of money it has been able to make so far this year.
In 2006 Goldman made $9.4 billion in profit; for the first nine months of 2007, it earned $8.2 billion.
"We know we make a lot of money, and we know that we live in this world and we have a responsibility to give something back," said Lloyd C. Blankfein, chairman and chief executive of Goldman Sachs.
Through the third quarter, Goldman accrued almost $17 billion in compensation (investment banks set aside roughly 50 percent of revenue every quarter for compensation).
Goldman is hardly alone: All investment banks encourage philanthropy.
Other banks have started donor-advised funds, though they are typically aimed at clients.
For example, in 2003, Merrill Lynch started the Merrill Lynch Community Charitable fund, which allowed wealth management clients and employees to set aside money that could then be used to make donations to one of 65 community foundations (the donor chooses the foundation).
Using the donor-advised fund allows individuals to receive a charitable deduction for setting aside the money (though it might not be paid out right away) and avoid the taxes applied to private foundations.
Other banks have different approaches. Bear Stearns requires employees to give 4 percent of their bonus and salary to charity every year.
At Credit Suisse, holiday parties are paid for only if they raise money for charity. This year the bank has picked one cause - the Trust for Public Land - and it aims to raise $400,000 from employees, which will be matched by $600,000 from the firm.
Different business units within Credit Suisse choose different ways to raise money. The investment bankers will have a foosball competition and casino night; equities will have an auction; and fixed-income requires employees at a certain level to contribute a certain amount. The $1 million raised will contribute to a $3 million budget to build three parks.
Before Goldman went public, employees who became partners were required to set up a foundation concurrent with their partnership status.
Then when Goldman went public, the firm set up a foundation that now has $200 million. The new fund will not change any of the firm's established giving.
"We have, as part of who we are, a very long history of charitable giving," Blankfein said.
