Structuring New Money For Good

Structuring New Money For Good

Honored to share with you here my very recent interview with the Association of Private Bankers in Greater China Region (APB) on its members’ publication in regards to the topic of Structuring New Money For Good. My point of view here is that the shocking new wealth creation in Asia has created enormous opportunities for family wealth and legal advisors to collaborate with philanthropy advisors to help the new wealth families in Asia to structure their wealth for good, which ensures the succession of family core values, and thus beat the curse of the old Chinese saying that ‘wealth does not pass three generations’. Please share your thoughts or leave your comments if some of the content resonates with your thinking or relevant to your work; would be happy to chat and explore synergies together. 

APB: Globally philanthropy is slowly becoming well established within Family Offices. Do you think it is a trend here to stay?

For the old families, the answer is yes. Most of the old families have already established their philanthropic structures horizontally in their overall family planning; and they have also hired either in-house or external philanthropy advisors and professionals who will help guide through their family members and family businesses in philanthropic matters from conceptualization to executions.

For the new wealth families, particularly in Asia, the philanthropy is just beginning to become part of the family office establishment and many haven’t even begun. There is tremendous opportunities for new money families, particularly in Asia, to structure their philanthropic endeavors properly by incorporating and adapting the best practices from old money families. When I mentioned about the structuring opportunities, I refer to families who haven’t yet set up their onshore/offshore charitable foundations/trusts structure in their family planning or as part of their family trust. To give you a specific example, Jack Ma and Joseph Tsai has set up their charitable trust in Singapore and has booked about 2% of the Alibaba share under the charitable trust which is worth of almost USD 5 billion. This is just one example and there are many new wealth families who just do charitable giving randomly and haven’t set up a proper philanthropic structures. There are tremendous opportunities for philanthropy advisors and wealth/legal advisors in Asia to work together and guide through their clients in setting up proper philanthropic structure to ignite and sustain their passion in giving.

When we talk about a family client doing philanthropy, they need to be reminded that it is not just a random or one-time charitable donation to a particular nonprofit. It is more about creating a philanthropic structure of their own so that their family’s legacy and capability in giving can be sustained and last forever. To provide you a simple calculation, a family client who has a passion to support a 5000 USD per person scholarship program for 10 university students each year would need to give to the university 50,000 USD every year. The family would need to create a philanthropic structure, a charitable trust or foundation, which has an asset of above 1 million USD that could generate at least 5% return each year to sustain the family’s charitable giving. Philanthropic structure can help create a long-lasting legacy and strong brand for the family. 

APB: What are the top trends you have seen emerging within family offices’ philanthropy-focused efforts? 

Collaborative-giving is the trend that I see within global family offices’ philanthropy focused efforts. Global families, when giving, also care about relations and synergies being generated in the process of giving. Collaborative-giving makes a lot of sense because first, it combines the due-diligence process and make it easier for different families to join together and make their decisions. It is just like a good venture capital or private equity project which may easily attract a number of different funders to co-invest at the same time. Secondly, the trustful relationship that has been built upon in collaborative-giving is valuable for those families, especially for families of different nationalities, to generate further synergies. I have seen examples such as a Chinese glass manufacturer family and an American private jet business owner formed trustful relationship in philanthropy and while at the same time formed mutually beneficial business relationship. The logic behind is simple; if a family gives away a lot of money for good, there is less a chance that there would be fraud in business dealing with the family. This logic is powerful especially for cross-border relationships. 

That’s why I see the increasing demands from both ends of the new wealth families in Asia and the old wealth families in the U.S and Europe, to interact more with each other and do good together. This trend is what I described as old and new money for good. I have seen Chinese family members are increasingly interested in visiting the old families in the United States and Europe. On the hand, old family foundations like the Rockefeller Foundation has also begun to develop new strategy to engage new wealth families in Asia more to leverage their wealth to co-invest for global impacts. This is definitely a great win-win for the both ends. And the trustful relationships from it, especially in today’s world that is full of tensions, would be very valuable for creating further synergies in multiple fronts.

APB: What are the most common philanthropic causes that Family Offices support?

It is really diverse. For example, there are over 300 Rockefeller family members now within the Rockefeller family and different family members have very different tastes and choices in terms of their preferred philanthropic domains and specific programs. The beauty of philanthropy is also in its diversity of choices that would meet the different preferences of family members. Even though by large, there are different preferences by different cultures: religion, education and human services are the top three in giving in the U.S., and for families in Asia, education is the most common and preferred area of giving for many. I would say for Chinese donors, either mainland-Chinese, Hongkong-Chinese, Singaporean Chinese, Malaysian Chinese, Indonesian Chinese or American Chinese, the education sector is in general their ‘religion’. We can see Chinese top business leaders such as Li Ka-shing and Jack Ma are now all devoting significant amount of their time and resources for the education causes that they are passionate about. 

APB: What do you think is the main influence over Family Offices’ interest to invest for impact? 

There are three main reasons:

First, business’s purpose is becoming a global phenomenon in driving the business leaders to think about how to align business with purpose. Especially in social media dominated society today, managing the purpose of your business is critical in managing risks that would be able to destroy company of any size overnight. Finding the purpose for your business also helps attract, retain and grow the best people, especially the millennial, within your business. The millennial are not just looking for a job, but also meaningfulness in their work.

Second, the appetite of next-generation usually prefers more of those value-based products and services. Profitability and return alone is no longer what only matters. It is the content, the story and the impact comes with those products and services that would make the differentiation for the next-gen members. For Chinese families that usually only have one child. If the parents don’t want their one son or one daughter to be in their business, or they simply think their children will not be capable of handling the family business, they would consider setting a philanthropic structure to create a meaningful and decent job for their next generation. 

Third, there are just many more choices nowadays available for family offices to invest for good. Other than traditional philanthropic giving, you can do impact investing as part of your VC/PE investment portfolio, or you can apply ESG/sustainable investing in your asset management in general. The definition of impact nowadays is becoming much wider and there are many choices for family offices to engage in the business of impact. 

APB: What do you think brought the new wave of investing such as ESG, responsible investing and impact investing? Do you think this all is just an extension of traditional philanthropy?

ESG, responsible investing and impact investing are very new concepts compared with the traditional philanthropy concept which has been there in human history for generations. I won’t say they are an extension of traditional philanthropy which still focuses very much on charitable giving, but they could be a spillover from the traditional philanthropy.

The answer is also highly relevant to the structural issue that I have mentioned. Because of the traditional philanthropy, there are so many philanthropic structures being set up and many of those philanthropic structures hold a huge amount of asset and endowment, and continue to grow by generations. Many old family foundations have billions of dollars under their asset, and large educational foundations like Harvard, has an endowment size of over 38.3 billion USD. Those traditional philanthropic structures are what were driving those concepts including ESG, responsible investing and impact investing in the earlier stage. Because all the assets under philanthropic structures by natures are for good, they definitely would encourage and embrace those for-good investing approaches, and it is also to help manage their reputations. The word impact investing also came from traditional philanthropic organization the Rockefeller Foundation. 

APB: What are the key differences in investing between the different generations when it comes to philanthropy? 

The first generation are usually in a more reactive scenario when it comes to philanthropy. They engage in philanthropy usually because of the pressures from the external stakeholders, reputation management or the peer pressures from other billionaires. The second generation would gradually embrace philanthropy as a necessary part of their life and business, because they have seen the values and benefits in philanthropy by having actually experienced it. They are usually the ones who mostly would start exploring the setup of a proper structure or expanding the philanthropic structure in managing their family’s philanthropic endeavors. As further to third, fourth and fifth generations, philanthropy would really become part of the lifestyle of the family members. The nobleness and decency that comes out from generations of family philanthropy engagement really shape the family name, family nobleness and honors.

Philanthropy is a critical part of passing by the core family values to the next generations, and a philanthropic structure ensures that value system would be preserved for generations. If you look at now the biggest challenge facing many of the new wealth Chinese families in Asia, wealth preservation is never the most challenging issue as there are so many choices and solutions to preserve the family wealth. What really concerns the first generation is that their only child doesn’t preserve the core values that drives the success of the first generation such as entrepreneurship, curiosity about the world and ambition to conquer, and in-depth understanding about the needs and motives of different social classes; philanthropy can play a valuable role in addressing this particular gap.

APB: What is the best piece of advice you would offer to families and UHNWIs in regard to philanthropy? 

If you haven’t started doing it, you are missing out valuable purpose-seeking occasions and philanthropic program ground fields that would have helped provide answers to your puzzling life questions, truly trustful and authentic relationships that would have brought in you great synergies also in personal life and business, and ephemeral opportunities for you to make a positive impact and change the lives of others. Give, and it shall be given unto you; and you always get much more in doing philanthropy. 

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