Asia now has the most high net-worth individuals in the world and the largest amount of high net-worth wealth, according to Capgemini’s World Wealth Report 2016.
It also seems to boast the highest level of altruism. While the US may be seen as the global leader when it comes to philanthropy, the majority of high net-worth individuals in the US say their passion for giving is driven by their own internal satisfaction.
In a survey of Asian high net-worth individuals by Credit Suisse and Campden Research, however, 95% of them said their main objective around philanthropy is to deliver social impact.
This desire to give back and improve society means that most high net-worth individuals in Asia are looking for “sustainability in their philanthropic work,” says Cynthia D’Anjou Brown, head of philanthropy advisory, north Asia, at HSBC Private Bank.
That desire for long-term impact at a time when more wealth is being created is quickly transforming the face of philanthropy in the region. Several years ago, most giving was made locally in education and healthcare in the home towns of Asia’s new high net-worth individuals. While that continues, Asia’s wealthy are also looking further afield to address some of the issues across an entire region and considering new structures and vehicles to help them with their philanthropic aims.
In the BNP Paribas 2016 philanthropy survey, Asia’s wealthy put national giving at the top of their priorities. That is understandable, given that for all its rising wealth, the region still has some big social and environmental challenges. Across Asia some 260 million people do not have access to clean water, with more than 1 billion living without sanitation, according to the World Health Organization. The growth of industrial output – much of it through dirty, older technologies – is also taking a toll on Asia’s environment and therefore health. It is estimated that some 3 million deaths a year across Asia are caused by air pollution.
Christina Tung is head of philanthropy advisory, Asia Pacific, at UBS. She says philanthropists are growing both in number and activity in Asia: “It is not that Asia’s wealthy were not active philanthropists in the past, but rather they used to be very private regarding their donations. The Asian culture, particularly the Chinese, is very humble around charitable giving and wealth, but now there are more high-profile names talking about philanthropy, and that is encouraging individuals to follow suit.”
Jack Ma, co-founder of Alibaba, has been encouraging greater discussion about philanthropy, for example. Last year the Alibaba Foundation launched its first conference, bringing together local and international philanthropists and experts to inspire ideas on China’s giving infrastructure and to help the more than 1 million Chinese millionaires with their giving.
Pony Ma, head of tech company Tencent, joined Jack Ma and current Alibaba CEO, Joe Tsai, in pledging company shares worth billions of dollars to invest in social and environmental solutions. And more recently Charles Chen Yidan, co-founder of Tencent, has launched two annual global prizes for education totalling almost $8 million.
Woon Shiu Lee, Bank of Singapore
Woon Shiu Lee, head of wealth planning at Bank of Singapore, says that these very notable moves by public figures have encouraged high net-worth clients across Asia to set up foundations.
“There’s an awareness that a foundation allows for a more fruitful legacy than buying houses,” says Lee. Foundations also enable Asian families to address wealth transfer – discussing how the family legacy will continue, bridging the gap between younger and older generations and involving family members that perhaps do not want to be part of the family business.
Indeed, the Credit Suisse/Campden white paper showed that 45% of Asia’s philanthropists see charitable giving as a means to bond family members. Lee says Bank of Singapore is expanding its charitable trust and foundation business to respond to the increased demand. While in the US the wealthy are moving towards donating their fortunes in their lifetime, Lee says that in Asia the focus is still on giving in perpetuity.
As part of that demand, Bank of Singapore has had to rethink its role with clients and their philanthropic aspirations. “In the past our engagement has been quite conservative, but now clients are encouraging us to sit on the boards of trusts and foundations and deepen our relationship to better understand the legacy they want to create to ensure longevity and continuity in the philanthropic initiative,” says Lee.
The move toward a more professional and sustainable means of giving creates an opportunity for the private banking industry. Because clients want to be more involved, Lee says that clients are more prepared to work with third parties and private banks. There are several ways that private banks can serve the new demands from Asian philanthropists, he points out. The first is by providing due diligence about the charities that clients invest in.
Scandals over the misuse of charitable funds in China have left many Asian philanthropists nervous about supporting charities; thorough due diligence could “alleviate some of this nervousness,” says Lee. This was particularly the experience in China before the implementation of the new Charity Law in 2016, when the Red Cross Society of China (which is not affiliated with the International Federation of the Red Cross) was plagued by scandals involving misused funds. Indeed, recent reports from the PKU Centre for Participation Studies and Supports at the Peking University Law School suggest that 90% of charitable organizations in China failed to meet basic standards for transparency.
Some banks are already offering due diligence. UBS, for example, gives clients the ability to work alongside its own foundation, the Optimus Foundation, which conducts due diligence on their behalf. “We help clients to select and design projects and conduct the due diligence, setting the key performance indicators, monitoring the project, providing reports and bringing clients on site visits – essentially training the clients so that they can go it alone later,” says Tung. That service is free. Optimus is overseeing more than 40 projects in China and over 150 projects worldwide.
Bank of Singapore’s Lee also mentions that clients are seeking more knowledge about the tax regimes being put into place to support giving: “There is a growing recognition among philanthropists that they are not alone. NGOs, corporates and governments can work together. Hong Kong and Singapore tax regimes, for example, match donations with philanthropists, while the new charity law in China has also enhanced tax incentives related to philanthropy. Clients can really benefit from getting advice from a private bank associated with these new developments.”
Finally, Lee says, because much of the money from Asian philanthropists may be heading to developing countries in Asia that are not politically stable, donating via a bank affords clients anonymity.
Where banks and intermediaries can also help the growing demands of Asia’s wealthy is in the creation of more innovative means of giving, such as connecting them with social entrepreneurs.
Anuj Kagalwala, a partner and leader of the asset and wealth management tax practice at PwC in Singapore, highlights social entrepreneurship as an important recipient of high net-worth capital in Asia, particularly in China, India and southeast Asia.
“There is private capital support for new and innovative projects, such as electrification of a village in India through solar power – almost like a venture capital project,” he says. “There is a sense that high net-worth individuals want to be able to support good ideas from entrepreneurs.”
A separate survey by Credit Suisse also reveals that impact investing could account for as much as 44% of Asia-Pacific ultra-high net-worth individuals’ philanthropic allocation in 2018 – up from 33% today. That growth will be dependent on investment opportunity, however.
Bernard Fung, who runs family office services and philanthropy advisory for Asia Pacific at Credit Suisse, says that the definition of impact investing is still undecided. “We consider that it must have two criteria: a return and to be an investment in a firm whose priority is social good, not where social good is simply a by-product,” he says.
Creating an impact
Fung says the Swiss bank noticed an uptick in clients’ enquiries about impact investing in 2014 and looked to create a vehicle or fund to meet the demand. Yet when the bank looked across Asia for suitable vehicles and managers, it could not find companies that had a track record in the region. That led Credit Suisse to set up a joint venture with local Singapore bank UOB’s venture capital arm.
“We had experience in microfinance and environmental bonds, and UOB Venture Management has been engaged in venture capital and early-stage funding in the region for 30 years, so had the experience and ability to find and screen potential investments,” says Fung. “Combining the two sets of skills, we created an impact investment manager.”
Early last year, the joint venture launched its first fund and held a first close at $55 million in December with private investors. It then invited institutions such as development finance institutions to participate in the final close during the first quarter of this year.
One of the earliest investments by the vehicle is in a company that produces milk supplements, offering networks of doctors and clinics the ability to help improve the welfare of rural children in China. Many mothers do not breast feed their children in rural areas as they have to work, which means as many as 5 million children a year are born in China without access to proper nutrition.
“We track the success of the company, and our last report showed it was reaching 1 million children a year,” says Fung.
Credit Suisse has also worked on note instruments for impact investing. Two notes funded higher education for students coming from developing countries who are less able to access good universities. A similar instrument – forestry covenants – was issued to target conservation.
Private banks are not the only institutions that are finding opportunity in the demand for impact investment products. Private equity firms and infrastructure funds are also responding to high net-worth clients.
“It’s a good fit,” says Kagalwala at PwC. “There’s a natural social or environmental angle for private equity or infrastructure investments, and they have an insight on a micro-level for opportunities. They also are more comfortable with higher levels of risk-taking, which some clients expect from making social or environmental investments as part of their overall philanthropic strategy.”
Stronger intermediaries would stimulate the sector, says Kagalwala. “It’s a difficult line to walk. Governments would be the best suited to encourage social impact investing through their policies, but there is the sense that if you need some monetary incentive to engage in, or become part of an impact investment movement, then it might contradict the will to help the world.”
Noor Quek, NQ International
Noor Quek, founder and CEO of family office advisory NQ International in Singapore, agrees that there is much room for creativity and greater engagement from intermediaries in answering the altruistic views of Asia’s wealthy. She estimates as few as six banks can offer a holistic wealth management service that includes advice on trusts, foundations and different ways to address philanthropic giving.
She says private banks need to up their game, particularly as younger generations, often educated in the US, UK and Australia, are returning to Asia and looking for innovative advice: “They’re looking at how fintech can play a role in charitable giving, or how crowdfunding can be done in a more intelligent way with accountability and heart. Asia is ripe for this innovation.”
She points to bank corporate social responsibility initiatives as being key in convincing philanthropists that they are a worthy partner. “Some of the local banks here in Singapore have really begun to increase the work they do locally around social issues – including health and education – which encourages clients, but they also need more of a plan embedded in the organization of how to be a bank with a heart. Asia’s wealthy are dedicating more time and money to philanthropy, and they want to know they are working with a bank that is sincere when it talks about the importance of philanthropy.”
She also says a move by banks to structure adviser remuneration to acknowledge engagement with clients on a philanthropic level would be well-received: “Because, aside from financial performance, much client loyalty is driven by a deep relationship and trust.”
As philanthropy has developed in Asia, D’Anjou Brown at HSBC says she has observed the challenges for service providers and intermediaries in keeping pace.
The skill set needs to be higher within the philanthropy industry, she says. There is really no one-size-fits-all across Asia, she points out, which can mean that the range of skills required to advise philanthropists can be harder to find than in other more homogeneous regions. For one, the laws governing charities and charitable giving differ greatly from country to country. The cultures are also very different, she adds. “We have many different religions throughout Asia, and in some countries, culture and religion can play a larger role in giving – like in Indonesia.”
She says that the challenge is not necessarily one of finding a good sales person, but rather someone who has the skill set to uncover what the client is passionate about. “Before talking about structures and tools and regulatory laws, the first step is to encourage the client to share with you what matters most to them.”
D’Anjou Brown shares the story of one client who expressed her concern at seeing so many elderly women collecting cardboard on the streets in order to make money: “When she died, she left hundreds of millions of dollars that are now being put into a grant-making strategy specifically to benefit elderly women.”
She points out that: “While initially it works to have someone selling your brand as the right one to work with, that needs to be followed up with understanding the philanthropic aspirations of the client and then brainstorming the best ways to help them fulfil their goals. That may require looking at their company’s CSR, sourcing charities or social enterprises, or finding partners for projects, introducing them to third parties.”
Such advisers, therefore, need to have a very broad knowledge of community needs, social policy and potential ways to have a social impact. D’Anjou Brown herself formerly worked with United Way and as a policy planner in Canada.
Cynthia D’Anjou Brown,
“Perhaps clients want to offer scholarships, perhaps they want to build on consumer protection, perhaps it is an environmental challenge they wish to address,” she says. “It becomes an intellectual exercise before it even gets to the portfolio and structure stage – and that skill set is hard to find.”
Fung says there is also a skills gap on the charity side that will need to be addressed for Asia’s philanthropy goals to be supported: “While Asia’s philanthropists are focusing more on the sustainability of the organizations to which they donate, it’s not necessarily natural for the head of a charity to think in terms of a sustainable business model.”
He says that while some have attempted to address the gap, as yet it feels more like individuals are asking for something that does not quite exist. Fung says it opens up the idea of philanthropy projects dedicated to training non-profits to answer this skills gap.
UBS’s Tung agrees that the one of the key challenges in philanthropy is keeping up with the pace of current change: “Philanthropy deals with such large issues, like health, education and climate change that are so rapidly evolving, so we have to constantly make sure we are looking at new models to react to those changes and engaging technology.”
She says that collaboration is going to be essential if philanthropy in Asia is going to grow: “We don’t see philanthropy and social good as an area for competition,” adds Tung, who says the bank reaches out to other organizations and financial institutions to share ideas.
Collaboration may indeed be essential. A recent report by UBS and PwC found that one billionaire is created in Asia every three days – outpacing all other regions in the world. With such vast amounts of wealth seeking to provide solutions to Asia’s social and environmental challenges, the more hands on deck the better.