Following the money trail – wealth and philanthropy in Asia

Are you sitting down? I’m sorry to be the one to break it to you but Wealth and Philanthropy are not mutually inclusive. Wealth doesn’t always precede large donations and philanthropy doesn’t always indicate wealth.

I say this because I think we often over-emphasise the role wealth plays in our fundraising research and programmes. Whether you call it major donor, major gift, leadership giving or High Net Worth Individual (HNWI) fundraising, all emphasise the scale of wealth but in reality “wealth merely” indicates a capacity to give IF the individual should choose to. There’s still an awfully long way to go before potential becomes reality.

Why am I iterating a point that may be fairly obvious to many of us? Well, it’s because of a shift in global wealth and the potential implications for fundraisers who have a more ‘global’ outlook.

I’ve been doing a lot of research lately for organisations looking to assess the potential of entering fundraising markets in Asia, particularly with regards to finding HNWIs in these markets. While this may be no big surprise given the rapidly growing economies of Asia in particular, for those charities (and Universities) that may begin looking deeper into these markets for major gift fundraising, I’d like to throw a small piece of caution into the mix.

Recent indications show that some countries Asia are likely to produce more HNWIs in the next 10 years than most other countries, even some western ones. Recent reports suggest the Asia/Pacific region will have more HNWIs (or those with $1m of investable assets), than any other region in the world as soon as by the end of next year.

According to the latest report from consultancy Booz & Company, as many as 3.6m HNWIs are expected to live in the Asia/Pacific region next year, compared with 2.6m in 2008. That’s 2% more than in the US and 6% more than in Europe. Booz estimates the global high net worth population will reach 11 million by the end of 2011. Whilst there is a discrepancy between these figures and those published in the World Wealth Report 2009, the fact that Asia is, in every sense, the emerging player on the world stage is hard to refute. Led by China and India, these countries will be where most of the region’s growth will come from, although Japan will remain the largest wealth management market in Asia.

These broad predictions are also backed up by other research. Last year the Boston Consulting Group said the number of US-dollar Chinese millionaires is likely to swell from 417,000 in 2008 to 788,000 by 2013, with their aggregate fortune topping the $7.6 trillion. Naturally then, as the rest of the world descends on Asia to do business, so too does fundraising.

Another factor in HNWI global outreach by charities is the reality that many High Net Worth and Ultra High Net Worth individuals in the West lost a lot of their wealth in the recent economic volatility. According to a new report by the Economist Intelligence Unit (EIU), many have lost their ‘Ultra’ tag altogether and have been downgraded to the rank of a mere High Net Worth Individual (oh the shame!).

According to the report, which conducted in-depth interviews with HNWIs, there is an ‘acute loss of trust and a rise in uncertainty’ amongst the wealthy. This begs the question whether the events of the past 18 months will lead to enduring changes in behaviour among the very wealthy.

According to the EIU report, there is evidence that the downturn has led to a reduction in philanthropy across most income levels in society. At the top of the pyramid, however, those who remain very wealthy following the recession say they intend to maintain or increase giving levels. In some cases this is because they have set up foundations, whose output is not altogether dependent on economic cycles.

The very wealthy interviewed for the report said that giving is a “state of mind” rather than a result of whether a percentage of their vast overall net worth has been gained or lost.

The report also highlights the fact that philanthropy in emerging markets such as India and China is maturing as wealth increases and as governments see the value of harnessing the expertise of wealthy entrepreneurs.

However, the point I want to make is that philanthropy among the very wealthy is in its infancy in these emerging markets. In India, the “insecurity” associated with the newly wealthy leads them to keep it within the religion, caste or the immediate community. This is a trend I have seen first-hand when researching HNWIs and foundations in both Asia and Latin America. 

Although most Asian countries have witnessed a ‘remarkable surge of civil society in the past ten years or so’, it is clear that much of the gain is accounted for by the growth of NGOs without an equal growth in sources of funding. As Tadashi Yamamoto, Presiden of the Japan Center for International Exchange commented ”the growth of grantmaking foundations has been limited, and even though countries like Japan saw a rapid growth of corporate foundations in the 1970s and 1980s, they have pretty much lost momentum in the past couple of decades”.

In all Asian countries, there is a need to ‘work with governments to create enabling environments, including the enactment of laws that support the formation of NGOs and provide incentives to individuals, corporations and foundations to make donations’[1]. However, many governments in the region continue to seek control over transfers of foreign funds for not-for-profit and philanthropic use, especially those with potentially political or advocacy connotations.

These conflicts take place over government attempts to strengthen the regulation of foreign donations (as in Bangladesh and India), and over not for profit attempts to ameliorate the effects of that regulation. Government regulation of foreign donations has, for example, had a significant effect on governance and accountability in both the not for profit and philanthropic sectors[2].

The belief is that as that insecurity gradually dissipates, giving will increase. In China, the government is encouraging philanthropy at the same time as it reduces its own role in paying to solve social problems. Yet the question is whether this giving will become more ‘global’ in outlook. In the West, ‘global citizens’ have emerged who don’t base their philanthropy on geographical boundaries but on a global ‘common good’. These wealthy people can no longer be seen as geographical commodities to be ‘owned’. 

Under these circumstances, charities that can forego ideas of ‘geographical ownership’, instead focusing on the organisation as a whole, are much more likely to succeed in cultivating wealthy ‘global citizens’.

Yet in Asia, although philanthropy is on the increase, it is still largely confined by these geographical boundaries. For many foundations in Asia (including a large number that are the philanthropic vehicles of many HNWIs) these boundaries are even confined to country level. 

Everything about the Asian market is “emerging” – the maturity of the fundraising market, the increasing number of philanthropists and foundations etc. but it has a long way to go before it may offer a good return on investment (in terms of realistic funding opportunities for charities looking to diversify their income) for the majority of charities outside the continent. Only perhaps those organisations with some ‘local presence’ may be able to really tap into the wealth in the region, but even then there is no guarantee.

A very real dichotomy exists where Asia is concerned. Growth in wealth is set to surpass some western countries, and with this comes potential funding opportunities, but due to religion, large populations, emerging (thus immature) markets and the huge issue of poverty and income disparity in these regions, means that all forms of philanthropy for the foreseeable future is likely to be directed towards local, national and regional development. Global philanthropy from this region is unlikely to emerge until these economies are on a par with their western counterparts.

So what’s my point? Well, essentially I’m saying that following global wealth in the belief that philanthropic opportunities will be just as prevalent is to be somewhat short-sighted. Detailed research needs to be conducted into the background of these markets and the motivations of the wealthy to give to charitable causes.

Following wealth trends blindly by investing in fundraising wherever wealth emerges could be a costly exercise for many organisations who don’t do their research.

[1] Strengthening Philanthropy in Asia Pacific: An Agenda for Action

[2]  Asia Pacific Philanthropy Consortium, Philanthropy and Law in South Asia: Recent Developments in Bangladesh, India, Nepal, Pakistan and Sri Lanka

Categories: High Net Worth Individuals, Philanthropy

Resource Type: Blog

Posted by Beccy Murrell

1 Star2 Stars3 Stars4 Stars5 Stars