What the super-rich want

INCREASING THE FLOW OF CAPITAL FOR GOOD - INVESTING AND GIVING

Magazine article

This editorial features an American perspective on recent trends and topical issues in philanthropy.  Our columnist is Melissa Berman of Rockefeller Philanthropy Advisors, which helps donors create thoughtful, effective philanthropy throughout the world.

New Year’s Eve hats and horns still littered our streets when reporters began calling Rockefeller Philanthropy Advisors about the impact of the ‘market meltdown’ on philanthropy.  Couldn’t we tell them tales of former billionaires backing out of multi-million dollar commitments?  Surely there was a major cultural institution in New York City on the brink of oblivion? 

I know most reporters are too young to remember the actual market meltdown of 1987 – but do none of them remember the 2001-2 decline? 

Whether 2008 brings us a market meltdown, decline, correction or unexpected upsurge, the overall impact on US philanthropy won’t be as dramatic as reporters might hope – especially with an historical perspective of more than 90 days.  The greatest pain, sadly, will fall on the human services organisations that rely on a broad base of small donors. For those generous souls, a small change in income or assets can wipe out their capacity to give to the less fortunate.  Not surprisingly, the ultra-wealthy (generally meaning at least $50m in assets) are much better insulated. 

In the case of the ultra-wealthy, only those whose holdings are exclusively in, say, a hedge fund that traded in the wrong part of the mortgage market will have their giving capacity wiped out.  And scanning the Slate and Chronicle of Philanthropy top-donor lists quickly reveals that few of the people who are making the really big donations are hostage to the mortgage markets – or even the credit markets generally.  It’s sort of the opposite of airline food: you could improve it 20% and it still wouldn’t be good.  For the richest among us, markets could decline 20% and they’d still be massively wealthy.

What would change the behavior of the ultra-high net worth (UHNW) donors?   As the most recent Bank of America/Indiana University study of wealthy US donors shows, the ultra-wealthy are influenced more than lesser wealth-holders by tax policy: more of them admit to giving in part because it makes good financial sense.  For example, they are more likely to say that they’d give much less if the charitable giving deduction were eliminated.  Of course, this is a big ‘what if’ supposition: the likelihood of the charitable deduction being eliminated is fairly trivial.  It’s possible that being super-wealthy just makes people more honest in answering surveys.   And when looking at another possible tax code change, the elimination of the estate tax, the ultra-wealthy were more apt to say that their charitable bequests would grow. 

That may well be because the very wealthiest are also more likely to want to limit the amount that their heirs inherit.  They are more inclined to discuss charitable giving with their children and involve them in philanthropic decisions.  Establishing a legacy and setting an example are more important to this group. 

 

Melissa Berman

The ultra-wealthy are also slightly more likely to want to ‘give back’, and to achieve impact.  They report that they’d give even more if they knew more about non-profits’ goals and organisations, and if they could understand the impact of their giving. 

The focus on understanding and impact is important to comprehend, because it may well explain where the ultra-wealthy give their money.  Many observers of charitable giving are deeply concerned that too little money goes to dealing with the tough issues facing the poor.  Some have even called on the US Congress to get involved in how and where philanthropy flows.  In California, advocates have proposed legislation which mandates that large funders track diversity-related data in their own organisations, their grantees, and the beneficiaries of grantees’ programmes.  

Indeed, the Slate and Chronicle listings of the biggest 2007 donors in the US certainly reinforces that perception.  Most of the really big gifts go to higher education, medical research and foundations/trusts.  Few of the biggest gifts went to organisations that are clearly focused on the disadvantaged.   Looked from the other end, the Chronicle’s listing of non-profits that got the most donations in 2007 is loaded with colleges, universities and medical centres.

These headline-creating factoids don’t always tell the whole story.  Many of the higher education gifts went to schools of public health, for example. Those institutions may well develop the policy solutions to the lack of decent health care for so many Americans.  Diabetes is tied to poverty, so research in that field holds promise for better lives.  And many gifts to higher education enable poorer students to attend. 

Nonetheless, just as wealth has become more concentrated, so has giving.  The big institutions just keep getting bigger.  To some extent, it’s because capacity begets quantity:  Someone looking to make a $300m donation will generally place it somewhere that already knows how to handle a gift this size.  And then the bigger the non-profit, the larger and better equipped its fundraising function will be, reinforcing what’s a virtuous cycle for them.   

There’s another angle to this concentration of philanthropy, however.  Quite simply, medical research and higher education (as well as big arts) institutions do an excellent job of explaining to donors what their gifts will accomplish.  They address the core concerns of the ultra-wealthy with great focus: legacy, impact, and tax efficiency.   They offer these potential donors solutions, not problems.  They have looked beneath the headlines, they have learned from the past, and they understand the real trends. 

Melissa A. Berman is President & CEO of Rockefeller Philanthropy Advisors.