University Challenge: The next generation of philanthropists

As I mentioned in my previous blog, the California economic think-tank the Milken Institute has come out with a very thoughtful paper on emerging trends in philanthropy. Check out milkeninstitute.org

The Stepping off the Sidelines report published by the Milken Institute last month takes its name from the huge volumes of philanthropic capital that sits on the sidelines – in other words is passive, often sitting in an endowment fund and providing a percentage return on investment which is then disbursed to grantees. Milken’s argument is that philanthropic capital is not used in an active entrepreneurial sense because philanthropy is, historically at least, a conservative and risk-averse sector.

The report has some eye-catching statistics:

• The wealthiest 1 percent donates 99 percent of the world’s charitable gifts;

• Only 36 percent of the world’s ultra-high-net-worth individuals (defined as having a net worth of $30 million or more) are engaged in philanthropy; and

• More than half of high-net-worth individuals (HNWIs, defined as having a net worth of $5 million or more) do not know whether their philanthropy has an impact, and 78 percent do not monitor or evaluate the effectiveness of their contribution.

The report goes on to observe that there is likely a change in philanthropy and philanthropic behaviour. Echoing some of the points surfaced in the Cap Gemini Wealth Report that we reported on last week, wealth and that impact on philanthropy is on the cusp of significant generational change. The Cap Gemini report tells us that 48% of High Net Worth Individuals are under the age of 40.

The Milken report states that younger ultra HNWIs consider philanthropy to be part of their “financial morality”. Moreover, they have a higher tolerance and appetite for risk in their philanthropic actions prepared to fund newer, less established organizations, as well as grassroots advocacy efforts. And they will prioritize charitable commitments over their lifetime rather than preserving their assets for future heirs, which is a departure from historical trends of family and institutional foundations operating in perpetuity.

This changing behaviour is, Milken considers, set to revolutionise philanthropy which will be characterised by:

• Greater risk in giving;

• Supporting less established organizations; and

• Engaging in new forms of social impact.

The shifting philanthropic behaviours also mirror both societal changes and wealth, and the balance of wealth in the United States from the East coast to the West coast. Although only 11 individuals from the tech industry—largely based in Silicon Valley—made the 2017 Philanthropy 50 list, they contributed 60 percent of this group’s total charitable giving in that year ($8.7 billion).

What does this mean for universities and university philanthropy? Probably three things will happen:

First, the market dominance of Ivy League and OxBridge universities receiving HNWI philanthropy is set to change. The $100m gift by the world’s rich to Harvard or Oxford will look hollow. Unless they identify truly innovative ways to tap into the new generation of philanthropists, the old assumptions of giving to Ivory Towers will risk looking irrelevant and out of step with modern society.

Second, universities which have been previously dismissed as third or fourth tier institutions are likely to be significant winners from shifting philanthropy funding patterns. With the next generation of HNWI philanthropists more focused on social impact and prepared to take risk, there is likely to be a more sophisticated understanding of the impact a donation to a university in Africa or Latin America can have.

Third, there is likely to greater volumes of philanthropy spread further afield – and universities should be well placed to reap the benefits. As the next generation of philanthropists seek to disburse their wealth in their lifetimes (as opposed to set up legacy foundations for their heirs to manage), then more philanthropy is likely to go much further than ever before. This is evidenced by the increasing number of so-called “spend-down” trusts. The template of giving by significant philanthropists such as Chuck Feeney and Lord Sainsbury is set to become the new philanthropic normal.

Along the way, there will be other impacts as well. But there can be no doubt that lesser known universities in lesser known locations will be better placed than ever to make the case of the long-term societal impact of giving to their institutions. And the audiences they need to impress - the world’s HNWI philanthropists - will be more sympathetic than ever to their cause.