Warren Buffett’s $37bn (£20bn) gift to his friend Bill Gates’s charitable foundation last week was a landmark donation, bringing the old-fashioned world of philanthropy bang up to date.
The very wealthy have long been keen to apply their own egos to their charitable donations, and many have foundations bearing their names. But Buffett’s handover of cash to someone else’s foundation reflects a welcome trend in concentrating instead on ensuring that money is put to good use within a disciplined framework.
Buffett can be sure his endowment will be managed under expert guidance – Gates is planning to leave his full-time role at Microsoft by 2008 to concentrate on philanthropy.
Buffett and Gates have mind-boggling sums to give away, but on a smaller scale there’s a trend for well-off individuals in the UK to seek out good causes where the outcomes can be assessed in terms of value-for- money, using measures that are more common in the private sector.
This new-wave of more “involved” funding for long-term projects has been made possible by development in the way charities are monitored for value-for-money. The old-fashioned measure of looking at how much money they spend on administration is now considered unsophisticated, although the Charities Aid Foundation (Caf) annual Charity Trends report, published last week, does give a general picture.
It shows that overall the UK’s top 500 fundraising charities spent 3 per cent of their expenditure on management and administration, 9 per cent on fundraising and publicity, and 83 per cent on direct charitable expenditure. (Other outgoings were 4 per cent on shops and trading expenditure, and 1 per cent for other expenditure).
What’s rather more fashionable is to analyse how effectively cash is used. New Philanthropy Capital (NPC) is a charity that taps into donors’ demands for more analysis and information. It researches charities and their efficiency, and matches good causes with interested corporates, trusts and wealthy individuals. There’s a useful list of charities considered highly effective on the NPC website (see below).
NPC gives the example of Retas, a programme run by Education Action, which retrains refugee doctors so they can work within the NHS. Sue Wixley at NPC says: “A small amount of money retrains doctors, meaning they are contributing to society, reintegrated into the community, and will not be depressed and isolated.” NPC calculates the return on investment in Retas at 6,000 per cent – based on the £10,000 cost of retraining a refugee doctor against the £250,000 cost of medical training for a school leaver from scratch.
Caf has recently linked with NPC to promote “collective funds” which direct money to charities selected by NPC for their effectiveness. Each collective fund will be helping a particular group or cause – the first two funds have seven charities each, none of them household names.
Donors can choose between a fund helping older people and one aimed at improving young people’s lives. The aim is to keep donors interested and informed by giving regular updates on how their money (£500 minimum) is being used.
Stephen Ainger, chief executive at Caf, says: “These trusts are one of the signs of more informed giving. Donors know their money will go to the grassroots.”
Another recent trend involves bringing private-sector financing techniques into the voluntary sector without creating undue risk for investors or charities. One of the most innovative projects is Venturesome, a £6m social investment fund that is also operated by Caf.
It offers loans and other financing to charities and voluntary groups that have traditionally been cold-shouldered by the mainstream banks, and whose causes are often not large or glamorous enough to attract stable cashflow. Venturesome’s director, John Kingston, says: “Many of our donors are individuals who work in financial services at senior levels. They see this as an interesting model to keep money moving and working hard for change – if you use the money two, three or four times then you can achieve social impact.”
A recent loan went to the Inside Out trust, which develops and runs workshops offering training and skills to prisoners. The charity was given £100,000 to help it continue its work, and the loan will be repaid over three years.
Well-off donors can make direct investment in young children’s financial futures through The Share Foundation, a new charity that aims to boost the Child Trust Fund (CTF) accounts of the very poorest children in society, 3,000 children who are in care, with no parental support at all.
Through the government’s CTF scheme, every child born since September 2002 to a very low-income background is now guaranteed £1,000 in savings, to mature at age 18. The Share Foundation hopes to increase this nest egg to £3,000 per child and plans to work with existing organisations to offer the children financial education.
The Share Foundation is run by Gavin Oldham, chief executive of stockbroker The Share Centre. He says: “In a sense you could describe it as a voluntary wealth distribution: using private capital as the seed corn for new private capital on a much broader basis, much better than losing it in tax to be converted into public expenditure.”
Charities Aid Foundation: information about Venturesome and themed charity funds (Fulfilling Older Lives and Engaging Young Lives): www.cafonline.org Tel: 01732 520 000
The Share Foundation: www.sharefound.org Tel: 01296 439100
New Philanthropy Capital: www.philanthropycapital.org Tel: 0207 785 6300
www.deloitte.co.uk/intelligentgiving (020 7007 9189)
