Family offices redefine philanthropy as they focus on making social impact

Millionaires and wealthy Asian families have long been a key philanthropic force behind giving back to local communities. With the largest wealth transfer expected to take place in the coming decade, the dynamics are shifting while the goal remains unchanged – to create a support network for segments of society most in need of financial attention.

According to the 2021 Credit Suisse Global Wealth Report, the number of millionaires will hit 84 million while the number of ultra-high-net-worth individuals (UHNWIs) should reach 344,000 in 2025. Asia-Pacific (Apac) itself will account for more than 30 per cent of the total number of millionaires and 28 per cent of the UHNWIs.

Based on the estimates from Wealth-X’s Family Wealth Transfer 2021 report, nearly US$3 trillion in Apac will be in the hands of a new generation.

In Asia, we have seen an exponential growth in professionally-run advisory firms over the last 5 years to manage the private assets of wealthy families, and the trend is expected to continue.

Current first- and second-generation family members are recognising the need for independent professional advice to ensure that the wealth they have accumulated is transitioned successfully and smoothly to the next generations.

This generational shift is also changing the order of managing wealth and putting purpose first.

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The new wealth owners in the region are no longer viewing their capital in discrete pools for investments and philanthropy. Instead, they are keen to apply a social impact lens across their assets, including their businesses. This is how families now put their wealth to work towards a worthy purpose.

Infusing purpose into wealth with moonshot philanthropy

While grant-making often remains the basic tenet of a family’s philanthropic efforts, the younger generations are also exploring other social impact tools now at their disposal, such as venture philanthropy, social impact bonds and impact investing. They see these models of doing good as complementary to grant-making in attaining their desired social outcomes, and are applying different tools to solve different problems, depending on need and context.

For instance, through grant-making, they could provide quality after-school care and tuition support for children from lower-income families, helping to level the playing field. Through venture philanthropy or impact investing, they could help scale up artificial intelligence technologies to deliver online customised learning that enhances classroom teaching.

In some countries, such technologies could also provide an opportunity for children living in rural areas to access quality educational materials.

As large pools of capital are being deployed to engage new opportunities (such as digitalisation) or defensively shift out of old ones (such as fossil fuels), retail and institutional investors are increasingly looking towards sustainable businesses. The same is true for family offices.

According to a 2019 survey from the Global Impact Investing Network, family offices reported that 57 per cent of their capital was deployed in impact strategies, compared with 24 per cent of bank capital and just 2 per cent at pension funds.

A 2021 Credit Suisse survey also showed that nearly half of single-family offices expect to boost their sustainable investments over the next 2-3 years, indicating that renewable energy, health, and education remain key themes for them.

This shift is a natural progression. What’s different for family offices is scale and flexibility. They have far more leeway than institutions to take risks, and the magnitude of their investments can bring much more influence than retail investors.

Family offices that have been investing in private equity and venture capital to generate returns for their family wealth are now extending the same approach into the philanthropic space, and engaging in “moonshot philanthropy”, which is the concept of funding high-risk, out-of-the-box ideas to identify scalable solutions for today’s societal and climate challenges.

By moving fluidly up and down the impact spectrum – from grant-making to impact investing – family offices are finding new ways to align values with capital and bringing purpose to wealth.

Building an ecosystem for giving and societal impact

As global citizens who have lived and spent large amounts of time in different parts of the world, this new generation of wealth owners in Apac thinks in broad terms — systemic rather than specific.

Besides being flexible in the way they do good, the next generation also often looks to spark change across a whole ecosystem. For example, besides making donations to improve facilities at an elder-care centre, they may seek ways to improve the healthy lifespan of seniors in general, so that the latter can delay or even avoid residential care altogether. Such an approach may involve engaging government agencies and wider stakeholders and transform the experience of ageing.

Covid-19 may have accelerated trends even more, which saw the highest number of philanthropic collaboratives in 2020 as family offices, foundations, impact funds, intermediaries and impact organisations across the ecosystem came together to combine their efforts and augment overall impact.

Making a mark on their family legacy

Today, almost all families incorporate their personal ideas of impact into discussions about the environment and social equity.

For ultra-high-net-worth families, these discussions now take on an even higher level to include ideas and solutions that systematically improve the community and the environment, and take into account how the principles of sustainability might influence wealth’s diversification, succession and legacy.

What we see is that as the next generation of family office leaders expand their efforts to infuse purpose even more deeply into wealth management through a variety of philanthropic tools, they are finding new ways to make their own mark on the family legacy.

Dawn Tan is Credit Suisse’s Asia-Pacific head of philanthropy advisory. Thomas Ang is global head of family office services for the bank’s wealth management division.