As philanthropy is increasingly regarded by family businesses as a form of social investment, it comes as no surprise to Peter Englisch, global family business leader at Ernst & Young Global Limited (EY), that many family businesses are engaging in impact investing alongside a variety of other objectives in their philanthropic pursuits.
A recent study by the EY Global Family Business Centre of Excellence that surveyed 525 family business owners and managers across 21 countries found that nearly half (44%) of those surveyed make investment decisions targeting specific social objectives along with a financial return.
The report, entitled Family business philanthropy – creating lasting impact through values and legacy, found that family businesses globally invest, on average, 3.1% of their wealth in social impact investing, with the Middle East (investing 3.5%), Europe and Asia (both investing 3.4%) leading this trend.
Meanwhile, the majority of family business owners and managers perceive governmental support for social impact investing to be better than (28%) or similar to (62%) the support for traditional philanthropy, even though in reality, only the UK has specifically legislated to accommodate and encourage it.
Survey respondents see government incentives and regulation as key enablers of family business philanthropy. In most countries, taxation seems to be viewed as a key factor for both philanthropy and social impact investing. In countries with laws that promote tax benefits for giving, family businesses are more likely to engage in philanthropy.
Mr. Englisch opines that as companies grow in size, their commitment to philanthropy rises in tandem, emphasising that it is therefore, crucial that governments “harness this desire of family businesses to give back [to society] and make a difference”.
Delegation to external managers
When it comes to organising their philanthropic activities, up to 70% of family business owners were found to be operating via a family-specific vehicle, with 40% having a family foundation or trust, and a mere 30% operating through a family office.
In terms of the success of philanthropic activities carried out, more than half (56%) of all family business owners personally oversee the progress and effectiveness of their philanthropic projects, with very small and very large family businesses tending to exert more family control over the projects compared to mid-sized family businesses.
The recently published World Wealth Report 2016 by Capgemini reported that Asia Pacific (APAC) is now home to the biggest pool of capital after overtaking North America for the first time, holding US$17.4 trillion in wealth from high-net-worth individuals (HNWIs) and boasting a HNWI population of 5.1 million.
Within APAC, however, the degree of control varies according to country, which is likely to impact how family businesses manage their wealth and subsequently, their philanthropic activities. In Hong Kong and China – where the third generation is seen to be taking over the family’s inherited wealth and business – Enrico Mattoli, head of global family office, Greater China at UBS Wealth Management, observes an institutionalisation of family offices taking place, with management layers hired to manage family office affairs, governance measures implemented and traders or portfolio managers hired to focus on different specialisations.
Meanwhile, in other parts of Asia such as in Singapore where wealth is still largely concentrated in the hands of the first generation, Mandeep Nalwa, chief executive officer and founder of Singapore-based Taurus Family Office, says the delegation of investment responsibility does not come easy, which subsequently impacts the outsourcing of money management to funds.
“While the perceived value – in terms of the removal of the conflict of interest [element] – is well understood, oftentimes the firm belief by the family patriarch in his own ability to have checks and balances [in place] on private banks enables – mistakenly, in my opinion – high-net-worth families to dispense with hiring the services of a family office [manager], or a fund manager,” he explains.
By Asia Asset Management