University Invests $165 Million Gift in Donor's Hedge Fund

University Invests $165 Million Gift in Donor's Hedge Fund

Less than an hour after a $165 million gift from Texas oilman T. Boone Pickens was deposited into the account of an Oklahoma State University charity, it was invested in a hedge fund controlled by the donor, the New York Times reports.

The gift for an athletics complex at OSU propelled Pickens into the ranks of the nation's top philanthropists last year and enabled him to take advantage, in the wake of Hurricane Katrina, of a temporary tax provision that allowed him a deduction for the gift equal to 100 percent of his adjusted gross income, double the normal limit of 50 percent. If Pickens does not declare that much income in 2005, he can carry the deduction into future years. Because the funds were invested in his hedge fund, BP Capital Management, it also means that Pickens is essentially still in control of the money — raising the question whether a wealthy person should get a tax break now for money that has not yet been put to charitable use. "Sadly, it's another case of a rich man manipulating charity for his own benefit," said Marcus Owens, a lawyer who formerly headed the division of the IRS that oversees tax-exempt groups.

Pickens sits on the board of OSU Cowboy Golf, a university-affiliated charity that had invested its cash with his firm prior to his latest gift. While the charity was created to benefit the OSU golf program, it will soon benefit the school's athletics programs at large. "It's all his money, and he's on the investment committee," said OSU athletic director Mike Holder. "If a person's making a gift of that size, he can stipulate what he wants it invested in." Holder added that investing in BP Capital was not a condition of the gift. "That was my decision."

According to nonprofit experts, though Pickens still has control over how the gift is invested, the transaction appears to be legal under federal law. "It's obviously right up to the edge of what's permissible, but the fact that he's on the board of the charity that is using his company's services isn't a violation," said Bruce R. Hopkins, a lawyer who has written several textbooks on tax-exempt law. "Is it a conflict of interest? Well, probably."

Although a spokesman for BP Capital said there is no conflict because the fund has waived all fees and its share of future profits on investments made with the funds, Pickens may still profit from having the money invested in his hedge fund. "He still retains the ability to use the assets in a way that may return benefit to him, for instance by making investments at a magnitude his fund might not otherwise be able to make," said Owens. "There may very well be a dollar benefit even if no fees are being paid."

Stephanie Strom. "Billionaire Gives a Big Gift but Still Gets to Invest It." New York Times 02/24/2006.