In spite of the challenging investment climate, these are exciting times in philanthropy. The number of potential philanthropists continues to grow and re-balance geographically.
For long-established clients and families, the next generation is now taking the reins as the baby boomers age. Many of these new philanthropists are bringing innovative approaches to the way they view and conduct their charitable activities.
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Often, aspiring philanthropists turn to their wealth managers for advice as they start out on their philanthropy journey. So what defines the future of philanthropy?
Donors are increasingly results driven
While there will always be a need for personal giving and cheque writing to provide direct relief to those in need, donors increasingly want to optimise their impact.
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By GlobalDataMeasurement and tracking of results are important to them. In the private client space, philanthropists want to achieve lasting results and systemic change on a larger scale by working from a carefully planned evidence-based giving strategy.
Donor advised funds (DAFs) are one of the fastest growing charitable giving vehicles with a combined AUM of nearly $30bn in the US. Donor-advised funds operate like charitable bank accounts, where a donor can build up a balance over time.
The donor receives an immediate tax deduction for each donation (in the US) or claims back the tax on gift-aid donations and adds it to the DAF (in the UK). The donor then recommends (‘advises’) grants to charities of their choice whenever they wish.
The possibility of remaining anonymous, the reduced cost and administrative burden compared to setting up your own foundation, the ability to invest the balance in your DAF to grow your philanthropic capital, and the possibility to get philanthropy advice from your DAF provider are all very compelling benefits for most clients.
Donors welcome collaboration
As part of their increasingly strategic approach to giving, most are willing to team up with other philanthropists, with corporations or with the recipients of their giving to ensure effectiveness. Results are more important than individual glory.
Giving circles are one such example. Much like investment clubs, giving circles are formed by a group of individual philanthropists who pool their money and decide together on their giving strategy.
These are especially popular among retirees as well as young professionals who are just starting to acquire wealth.
Many donors, especially first generation donors, are keen to mix the business approaches that have made them so successful with their philanthropy.
Venture philanthropy is one approach that attempts to use the principles of venture capital in giving — taking risks to find new, effective, and quantifiable ways to improve lives and make the world a better place. And just as in venture capital, venture philanthropists are highly engaged with the chosen charity, taking a hands-on approach that provides management skills as well as capital.
New social investment financial vehicles are also emerging that allow donors to make investments in charities as part of their giving strategies.
Donors are concerned about engaging the next generation
Preserving a family’s traditions and values over time has long been a guiding principle of many family foundations. In fast growing emerging economies, increasing wealth means that many families are facing this question for the first time.
In these markets, family philanthropy is often tied to a family business. When a liquidity event occurs, families face increased pressure to structure their philanthropy separately. Some choose to set up a philanthropic structure next to their family office to benefit from common infrastructure and staff.
The most engaged families see philanthropy as a way to unify the family and provide a platform to involve future generations.
John Canady is interim director of philanthropy at Charities Aid Foundation (CAF) and previously worked in the hedge fund industry.
