Impact Investing: How the Affluent Structure their Charitable Gifts
Philanthropically committed funds are traditionally divided into two tranches: grants for social impact and investments for financial growth. Grants to nonprofits are designed to maximize social impact by providing critical support to worthy causes.
They can be viewed as a “social investment” with a 100 percent negative financial return for the donor. Once given, the funds never come back. Invested funds are another story. The bulk of philanthropically committed capital is invested in publicly traded securities or private markets for maximum returns. Like grants, the investments may affect a variety of social issues, such as the environment, immigration, labor practices, food, education, resource consumption, healthcare or fighting human trafficking or discrimination. Recently, philanthropic and investment leaders have come to recognize that grants and investments can have both financial returns and social impact—and that strategic alignment and integration with mission is important to maximize change.
A Case Study: Innovative Structures for Gifting Recently, Mark Zuckerberg and Dr. Priscilla Chan made headlines when they pledged to give 99 percent of their Facebook shares to charitable purposes. However, no charitable donation was made. Instead, the couple pledged to transfer ownership of the shares to a new limited liability company (LLC): the Chan Zuckerberg Initiative. This LLC will sell the shares and donate the proceeds to charity, invest in other for-profit entities, contribute to political efforts and deploy funds in other ways to “advance human potential and promote equality.” The organization intends to focus on improving education, curing disease and strengthening communities. Its first investment was in a startup company that trains African engineers for jobs in the tech industry.
A Case Study: Innovative Structures for Gifting Recently, Mark Zuckerberg and Dr. Priscilla Chan made headlines when they pledged to give 99 percent of their Facebook shares to charitable purposes. However, no charitable donation was made. Instead, the couple pledged to transfer ownership of the shares to a new limited liability company (LLC): the Chan Zuckerberg Initiative. This LLC will sell the shares and donate the proceeds to charity, invest in other for-profit entities, contribute to political efforts and deploy funds in other ways to “advance human potential and promote equality.” The organization intends to focus on improving education, curing disease and strengthening communities. Its first investment was in a startup company that trains African engineers for jobs in the tech industry.
“By using an LLC instead of a traditional foundation,” said Zuckerberg, “we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively.”
Sophisticated philanthropists are looking for similarly innovative ways to deploy capital to achieve their charitable goals.
A Separate Discipline Affluent individuals and families recognize the need to plan for their future security and their legacies—and often go to great lengths to do so. Usually, they work closely with experts who make up three legs of the planning table and help them achieve sophisticated tax, financial and estate planning goals.
The same intellectual resources and rigor that were used to earn money in the first place should be applied to philanthropic efforts to distribute that money. To generate wealth, the successful entrepreneur, executive or investor relies on tools like research, analysis, expertise, strategy, organized implementation, careful evaluation and constant adjustment. By using these same tools, philanthropists will achieve greater social returns and impact. In addition, they will be far more satisfied with the results for themselves and their families. Boxwood Consultants, through its philanthropic consulting services, acts as a sturdy fourth leg to the financial planning table, working alongside the other three categories of trusted advisors.
Philanthropists should carefully examine the reasons behind their decision to share assets with the less fortunate or with deserving causes. We are positioned to help provide professional guidance needed. Some questions we facilitate considering are:
A Separate Discipline Affluent individuals and families recognize the need to plan for their future security and their legacies—and often go to great lengths to do so. Usually, they work closely with experts who make up three legs of the planning table and help them achieve sophisticated tax, financial and estate planning goals.
The same intellectual resources and rigor that were used to earn money in the first place should be applied to philanthropic efforts to distribute that money. To generate wealth, the successful entrepreneur, executive or investor relies on tools like research, analysis, expertise, strategy, organized implementation, careful evaluation and constant adjustment. By using these same tools, philanthropists will achieve greater social returns and impact. In addition, they will be far more satisfied with the results for themselves and their families. Boxwood Consultants, through its philanthropic consulting services, acts as a sturdy fourth leg to the financial planning table, working alongside the other three categories of trusted advisors.
Philanthropists should carefully examine the reasons behind their decision to share assets with the less fortunate or with deserving causes. We are positioned to help provide professional guidance needed. Some questions we facilitate considering are:
- What do I hope to achieve—for myself, my family, my business, my community and beyond—by being philanthropic?
- Which tools, techniques and strategies are most likely to help me achieve my goals?
- How do I successfully engage the rising generations in the family to help achieve shared goals, now and going forward?
- How do I evaluate my philanthropic efforts to know if they’re succeeding?
- How do I closely align the investment of philanthropic assets with family or organizational mission and values?
Conclusion
Without careful planning, charitable donations can be ineffectual. Most successful individuals pay close attention and devote considerable time planning their investments in the stock market or their businesses. Successful and fulfilled donors will pay equally close attention to their philanthropic plans.
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