ALTHOUGH PRIVATE WEALTH IN ASIA IS GROWING AT THE FASTEST RATE IN THE WORLD THERE ARE MANY SOCIAL PROBLEMS TO REMEDY. RUPERT WALKER EXAMINES HOW PHILANTHROPY IS BECOMING AN INTEGRAL PART OF WEALTH MANAGEMENT
Shiv Nadar, the billionaire entrepreneur who created the Indian technology firm HCL, had a clear guiding principle when he set up his eponymous educational charitable foundation in 1994. Its emphasis was “creative” in contrast to “corrective” philanthropy, and Nadar points to early 20th century benefactors Rockefeller and Carnegie as his inspiration. It is an approach that allows institutionalised philanthropy for long-term, high-impact socio-economic transformation. In recognition of his foundation’s achievement in building, funding and administering schools in India, last year Nadar was awarded the BNP Paribas Prize for Individual Philanthropy by the bank’s wealth management subsidiary.
The timing of the award is significant. Although Asia has a long tradition of charity based on cultural, religious and social responsibility, it has tended to be informal, often anonymous and usually unsystematic. Yet today, philanthropy, defined as the organised process of making, monitoring and evaluating financial donations to achieve specific objectives is developing rapidly within the region.
Increasingly, it is becoming an integral part of the wealth management activities of Asia’s affluent individuals and
families. As a result, private banks have stepped up to offer new services and appropriate advice.
HSBC Private Bank now manages over US$1 billion of assets in more than 100 charitable trusts in Hong Kong. And last year, the private bank and its high-net worth clients donated HK$234 million (US$30,165,000) which almost matched the size of the Hong Kong government’s HK$273M (US$35,192,000) community chest.
“The Private Wealth Solutions division offers a complete service in conjunction with its clients, providing execution, monitoring, management and administration,” says Cynthia D’anjou-brown, head of philanthropy advisory, North Asia and family governance advisor, Private Wealth Solutions for HSBC.
It advises on how to formulate strategic goals and appropriate projects for individuals and family offices to channel their charitable donations, she adds.
HSBC is not alone. BNP Paribas set up an advisory service called the “Fondation de l’orangerie” to help its clients with their philanthropic endeavours in 2008; UBS has been offering dedicated philanthropic support to key clients worldwide for over a decade; and Credit Suisse maintains a philanthropy team and has hosted a forum in Singapore each year since 2011.
Asia Pacific’s rising wealth over the past two decades has been a major catalyst for this focus on giving. Last year, it was the world region that recorded the biggest increase in high net worth individuals (HNWIS), with the number rising by 17.3 per cent compared with 2012, according to Capgemini’s 2014 World Wealth Report.
The total number of people in the region with investible assets of more than US$1 million now totals about 4.33 million and this year, the firm expects its population of HNWIS to exceed the number in North America.
Growth in the value of the region’s investible wealth was also the highest in the world, surging 18.2 per cent to US$14.2 trillion. On this indicator, the region is set to overtake North America in 2015. The growth was led by Japan, supported by strong equity and real estate markets, and the rising trend is being fueled by rapid economic growth in China, India and Southeast Asian countries as well as the continued prosperity of Hong Kong and Singapore as financial centres.
In fact, Asia Pacific has been the main source of growth in global wealth for the past five years, according to the Capgemini survey. Furthermore, the nouveau riche also seem to place a greater value here than elsewhere on achieving more than simply making further monetary gains. They want to have a positive impact on society.
Among the 25 nations across the world surveyed by Capgemini for having HNWIS who expect their charitable donations to have a positive social impact, the top five are all in Asia Pacific.
India has the highest proportion of HNWIS who believe philanthropy that promotes a social impact is “extremely or very important” (90.5 per cent). Closely following are China (89.4 per cent) and Indonesia (89.2 per cent), Hong Kong (82.1 per cent) and Malaysia (81.1 per cent).
Perhaps it is unsurprising that these five territories place
such emphasis on generating social benefits. As emerging markets, they have all experienced rapid economic growth in recent decades that has produced massive wealth for some but left many more people behind. Vast numbers of people in the region still lack basic necessities, such as proper nutrition, education, sanitation and healthcare.
In other words, although the number of HNWIS in AsiaPacific has risen substantially (and in many countries a burgeoning middle-class population has evolved too), poverty remains an everyday reality for tens of millions of people in the region.
There are several ways that resources can be allocated to generate social benefits. The traditional way to help others or support a cause is to make charitable donations or volunteer your time or expertise. Donors expect no financial reward but hope to do good – although they might also gain personal recognition, a marketing edge for their businesses and other intangible benefits.
Socially-responsible investment is another method. This involves making investment choices with the clear aim of achieving a positive social impact either by avoiding certain sectors, such as tobacco and armaments, or by incorporating an assessment of environmental, social and governance (ESG) factors in the investment analysis process. This approach can satisfy both financial return objectives and social criteria.
A common route for family firms to spread their wealth and benefit the wider society has been to set up foundations. Some, such the Shiv Nadar Foundation, are highly professional and organised, while others remain wholly or partially embedded in the company’s community or cultural ties.
Another, less formal formal approach is taken by philanthropists such as Thai billionaire William Heinecke, who aligns his donations closely with the corporate social responsibility (CSR) activities of Minor Holdings, one of his suite of companies in Thailand.
Yet most philanthropy in Asia has a common motivation: it provides a channel for families to build and maintain inner unity and harmony across the generations.
“Children learn important social skills at the same time as the family bond [together] through participation on a shared journey,” says D’anjou-brown. “It is a tangible mechanism for reinforcing and sustaining shared values that instill cohesion and defuse conflict.”
An influential study of family philanthropy in Asia conducted by Ubs-insead in 2011, found that the main motivation – cited by 42 per cent of the 200 people and organisations surveyed – was “ensuring the continuity of family values or creating a lasting legacy.”
It concluded that philanthropy teaches principles like compassion, courage and tolerance, fosters capacities for leadership, innovation and responsibility, and supports family cohesion by providing a common activity and goal for the family to pursue as a unit.
The Ubs-insead survey also identified another important trend. The rapid pace of change across Asia has led to the emergence of families with several generations whose experiences and aspirations have been moulded by radically different living conditions.
The older generation tends to feel more responsible to the local community and is more influenced by tradition, while young people are increasingly interested in national and international causes. Older family members will focus on issues such as education, health and poverty, while the younger ones are more open to sectors such as the arts, civil rights and the environment - and tend to be more interested in measuring the impact of giving. Indeed, “impact investing” is in vogue across the world, with the Gates Foundation set up by Bill and Melinda Gates perhaps the most prominent practitioner. This approach tries to generate explicit, measurable social benefits as well as financial gains, and cash is often re-invested in the social project to ensure its sustainability, while both the social and monetary returns are quantified and monitored.
It is a hands-on philanthropic process in which participants are directly involved through providing seed capital or using their business expertise and networks to help meet lasting, self-sustaining objectives. The methods can resemble those of a commercial enterprise.
An example of impact investing is the Green Monday organisation run by David Yeung in Hong Kong, which aims to promote awareness about the damage caused to the environment by livestock farming.
It combines the purely charitable behavior of a not-forprofit foundation with the income-generating activities of a venture capital firm. Fees from consultancy support the foundation. The initiative is also very modern, in the sense that it is a single-issue enterprise for which advocacy through public relations and lobbying is a key tool.
Clearly, as the number of HNWIS in Asia Pacific and their assets continue to grow and the region’s wealthy decisionmakers become ever younger, more philanthropic causes will emerge and the adoption of professional techniques is likely to become the norm. Private banks have already recognised this accelerating trend and are gearing up to provide advice and support across the region.