Asia is on the cusp of its largest ever inter-generational wealth transfer, and some families are using philanthropy as a way to pass down values, as well as assets. Tara Loader Wilkinson explains more.
Asia’s young inheritors are doing things differently from their forefathers. And this includes taking a structured, professional approach to philanthropy.
Philanthropy is an age-old tradition in Asia, but wide-scale systematised giving is still relatively new. Thirty years ago, a first generation entrepreneur in Asia might write a cheque in his own name to his favourite local charity, says Michelle Chow, a philanthropy consultant at law firm Withers Worldwide. But things are changing. “Unlike their ancestors, Asia’s Millennial inheritors are giving in a structured way with a mission, from social investment to impact-focused philanthropic initiatives,” she said.
Family foundations are becoming an increasingly popular way to do good in an organised manner, she added. The Asian foundation industry is in its infancy compared to Europe and the US, although it is on the rise. According to the National Center for Charitable Statistics, there are over 100,000 private foundations in the US, made famous by the likes of John D. Rockefeller and Bill and Melinda Gates. There is no official estimate for Asia but it is likely to be less than 10,000, experts say. Many of these have fallen into inactivity as they don’t have a dedicated professional running them. A common trend is for heirs and successors to revive them, Chow said.
“Many family foundations in Asia were set up by the patriarch years ago and are now dormant, usually because the family has been too busy running the business,” Chow said. “The trend is for the younger generation to travel or study abroad, return home and start to integrate into the family business by first running the family foundations,” she explained. “These young people are motivated by creating discernible impact and evidenced outcomes. Often they will implement practices they have observed abroad, like strategic philanthropy or impact giving. They find a social problem and they want to solve it.”
One example is the Singapore-based Lien Foundation, established by the late Dr Lien Ying Chow in 1980. His grandson, Laurence Lien, took the role of chairman of the foundation’s board in 2002. “My grandparents invited me to the role with the task of growing its grant-making programmes,” said Lien, who grew the foundation — which focuses on the elderly and children — and hired professionals to run it. “The foundation is known to be innovative and strategic in its chosen fields. It is ably run by Lee Poh Wah, our chief executive, and his team. Hence, I am able to pursue other projects, including co-founding the Asia Philanthropy Circle, which is now a full-time commitment.”
The industry is in flux because it is still nascent. In Asia, wealth is usually no more than three generations old so the landscape of family philanthropy is being written day by day. The younger generation is key to the growth of the sector, according to the Campden Wealth Global Family Office Report 2014. Philanthropic involvement in Asian family offices grew by 10 percent from 2013 to 2014, according to respondents, indicating an effort to involve younger generations in the activities and operation of the office. Now, 77 percent of family offices in the region engage in some form of philanthropy.
“In the past, Asian families tended to make donations in their personal name, some publicly and some privately,” said Steven Seow, Mercer’s head of wealth management in Asia. “But over the past three to five years, we have seen a trend where more families are contributing in a systematic way to a specific cause that the family believes in.” He said this has spurred the emergence of family foundations and also coincides with younger generations being more involved in the managing of family assets in Asia. “This younger generation is happier to pay fees for advice and are willing to engage experts to help run their philanthropic projects.”
There are other reasons for the rise in philanthropy. Asia is on the cusp of its largest ever inter-generational wealth transfer, and some families are using philanthropy as a way to pass down values, as well as assets. Between 2013 and 2014, the wealth held by ultra high net worth individuals (those with assets of US$30 million and up) in Asia rose by 6 percent to US$7 trillion, according to the Wealth-X and NFP Family Wealth Transfers Report 2014.
For a multi-generational family that is giving an annual endowment of at least US$300,000, a private philanthropic foundation makes sense as a tool to bond generations together, said Christina Tung, executive director of philanthropy and values-based investing at UBS.
“After a liquidity event the family might want to put aside a chunk of money for a good cause, often structured as an endowment that can only ever be used with a charitable purpose. We see many big families doing this to create a family legacy for future generations, and to create common ground with their successors.”
According to the INSEAD and UBS Study on Family Philanthropy in Asia, 45 percent of funding for Asian family foundations has come from first generation businesses.
While the older generation focuses on sectors such as education, health and poverty, younger philanthropists are more open to sectors such as the arts, civil rights and the environment, the study says. In addition, 32 percent of the older generation give to the local community, while only 20 percent of the younger generation do.
With the next decade or two seeing as much as 80 percent of wealth being passed on to the next generation, the rise of philanthropic family foundations is still largely ahead of Asia.
This article was first published in wealth-x and had been reproduced with permission.