Philanthropy as enterprise

Philanthropic endeavours are usually one of the first things to fall by the wayside when the wealthy are faced with tougher times.

There are no Europe-wide statistics on philanthropic giving. But trends are likely to mirror what has being happening in the U.S., experts say — and the picture there isn’t good. The American Philanthropic Giving Index, produced by the Center on Philanthropy at Indiana University, revealed giving fell dramatically in the first half of the year. The PGI, similar to a Consumer Confidence Index for charitable giving, is now 64.8, a 21.7% decrease from just six months ago and a 27% decrease since December 2007. The index found that fundraisers’ assessment of the current giving environment fell to its lowest level since records began in 1998.

Lena Schreiber, a senior consultant at the London-based consultancy New Philanthropy Capital, believes that the fall in giving has moved across the Atlantic. “Professional advisers tell us that wealthy individuals who may have intended to set up philanthropic foundations are delaying this decision, along with other decisions about their wealth management,” she says.

Still, it’s not all doom and gloom. Those at the forefront of the industry say many of the wealthy continue to give, but are often looking for a more hands-on approach, demanding greater transparency and a return on their money. Outright giving is being replaced by social investing, and philanthropy is becoming more efficient and entrepreneurial as a consequence.

“Since the credit crisis, we’ve seen more philanthropists turning to alternative ways of helping charities, notably through specialist finance in providing the capital to fund loans to charities,” says Mike Packham, head of private clients, enterprise and philanthropy at the Charities Aid Foundation. “We expect the market for alternative investment to increase over the coming years as a more entrepreneurial approach to charity is adopted.”

Those spending the money of the wealthy — the charities — should adopt a more commercial imperative, says James Caan, a prominent British entrepreneur and philanthropist. “Charities need to start running like businesses,” he says. “At the end of the day, most charities are investing other people’s money so they should be much more efficient.”

Demands for greater efficiency, and returns, have helped promote the development of venture philanthropy in Europe. At the European Venture Philanthropy Association’s annual conference last month in Amsterdam, co-founder Serge Raicher said membership had risen by 10% in the previous two months.

EVPA‘s membership is made up of individuals and corporations. New members include private banks, like Liechtenstein’s LGT Group, which want to offer their clients more philanthropic services.

The U.K.-based Bridges Ventures is a good example of an EVPA member. The company attempts to delivers social returns by investing in companies in deprived areas. The impact of its investments on the area is reported to investors alongside their financial returns.

“There was a lot of skepticism in 2001 when we raised our first fund, but five years later, we set up a second fund that was oversubscribed and raised £75 million,” says Michele Giddens, executive director at Bridges. “You have to get real financial results as well as social impacts to do this.”

So-called charitable bonds are another area gaining in popularity. Citylife, the U.K. charity that issues these bonds, will next week open the East London Bond on behalf of two community-based charities working in some of the most deprived areas in Europe. The East London Bond has a number of supporters, including City of London veteran and philanthropist Brian Winterflood.

Citylife bonds work by paying the investor back in full, but at the same time giving to charity. The bonds are available to purchase for a fixed offer period. When the offer closes, around 80% of the total is loaned to a social-housing provider, while the rest is given to charity. After five years, the housing provider repays the loan with interest, taking the fund to its original 100% level, and bondholders are repaid in full.

In a similar effort to gain greater control over their philanthropic efforts, the very wealthy are setting up foundations in increasing numbers. Rebecca Eastmond, head of philanthropy at J.P. Morgan, says her bank has witnessed an increase in demand for foundations in the last year.

Stanley Fink, one of the U.K.’s most vocal proponents of the importance of philanthropy and the former head of Man Group PLC, believes a commercial element should play a big part of the giving process. He says: “Entrepreneurs want to be actively involved in charitable work and actually see where their money is going, rather than just writing off a cheque.”

But Mr. Fink and others argue that for philanthropy and social investment to be taken more seriously, it would help if they were considered part of the portfolio-allocation efforts of private banks. Some wealth managers are certainly adding staff to their philanthropy departments. Barclays Wealth, J.P. Morgan Private Bank, Citi Private Bank and Coutts & Co. have added resources to their philanthropy units in the last years.

Ms. Giddens says wealth managers still need to take philanthropy more seriously. “There isn’t a clear place for it in the asset allocation table among wealth managers yet. It will be a victory when it is eventually is accepted.”

Source: The Wall Street Journal

Read Vita Europe Non Profit ID Card on the EVPA event last month