Rich get stingy as market dips


  • Business
  • Sunday, 28 Sep 2003

By KAREN ILEY

Decimated fortunes, bankruptcies, scandals and job losses are just some of the well-known victims of the recent market rout. 

But the fallout is spreading to charities as the generous instincts of wealthy philanthropists who fund them take a battering. 

While watching their fortunes dwindle, the well-to-do are much more choosy about which causes to support. Even as markets begin to bounce back, it could take a while for benevolence to return on a large scale. 

Figures show that in 2002, foundations, individuals and corporations donated US$240bil in the United States. While that was 1% overall on 2001, it was a half per cent down when adjusted for inflation. 

And it represents a huge shift from the heady days of the 1990s when charitable donations leapt 50% over the course of the decade, according to banks which track such funds. 

It seems that even the world's wealthiest man, Microsoft Corp chairman Bill Gates, is feeling the pinch. 

The Bill & Melinda Gates Foundation paid grants of US$1.157bil in 2002, a one per cent increase on the year after a 15% rise in 2001, according to its annual reports. 

“It's been difficult for foundations and individuals to maintain the level of giving because of the impact of the markets on their investments,” said Patricia Surak, director, Foundation and Corporate Relations at Medecins Sans Frontieres (MSF) (Doctors Without Borders). 

“Today, it seems somewhat insecure. Some foundations say they can't give as much as last year, others say they can't give at all and others can manage only a small increase.” 

MSF was forced to dip into its own reserves last year when donations disappointed. It has made conservative projections for its 2003 budget amid doubts whether altruism will rebound with the markets. 

A big reason why donations have not dropped more steeply is that many givers have honoured multi-year pledges, but the worst market downturn in decades has blown a big hole in endowment income, meaning donors simply have less to give. 

“It will be some time before people feel like they did in the 1990s when there was a dream that anything was possible,” said Marlene Hess, head of Global Philanthropic Services at JP Morgan Private Bank. “The dreams will come back but they will not have the same kind of swagger.” 

Private banks that employ people specifically to advise the wealthy on how to give it away insist their clients are just as willing as ever to dig deep for a good cause. 

But they are getting more hard-nosed about it, they want to make sure their money has the desired effect and they won't settle for shoddy results. 

“People want their social investments to be as successful and as well evaluated as their financial investments,” said Hess, who helps clients turn their motives and objectives into a philanthropy strategy. 

“Wealthy families want to know if the project really is creating social value in the same way that shareholders demand economic value from their investments,” said Gabriele Roselius, head of family office consulting at UBS. 

Lynn Fritz, who sold his logistics business in 2001 for US$450mil, has invested US$1mil in a new high-tech supply system for the International Federation of Red Cross and Red Crescent Societies (IFRC). 

The IFRC estimates the new software could speed the relief process by 20% to 30%, helping it aid more than 250 million caught up in conflict and natural disasters each year. 

“The absolute categorical factor in why we did this is that the application of our money, our interest, our resources is going to have a measurable improvement,” Fritz told Reuters. 

“Everything is about outcome. There's just less money out there and that, together with the cynicism that comes with a downturn, means we have to make sure we get the absolute most out of our money or our time or whatever we're donating.” 

Fritz, who founded the Fritz Institute to turn his expertise in logistics and technology to the benefit of aid groups, said he wanted to make a difference. 

“I feel this is so much more than just giving money. I didn't want to play golf, I didn't want to relax. I wanted to utilise my time and effort to build things to have an extraordinary human impact,” he said. – Reuters  

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