Bee Lin Ang :
As governments become financially strapped, an increasing number of foundations are chasing the same pool of private capital, says Global Head of Philanthropy and Values Based Investing Mario Marconi. “Competition is exploding, which means the costs of transactions – or costs of fund raising – are exploding as well, which is not sustainable.”
“Switzerland, for instance, has some 19,000 foundations. These foundations need to start to work together – we will see more consolidation happening,” he adds.
Private wealth is increasingly stepping in to fill the void left by governments for contributions to improve welfare in society. Scarce resources and highly indebted governments have led to a rapidly growing sector of new models of philanthropy that have the dual objective of achieving financial returns and social outcomes, such as impact investing. While charitable contributions have recovered since the global financial crisis to reach close to”pre-crisis levels,” funding from governments has reduced drastically, according to Marconi.
“There is a scarcity of financial resources. It started with the crisis, obviously, but more so because the public sector is very challenged money-wise,” says Marconi.
According to a survey by UK’s ACEVO Charity Leaders Network earlier this year, 88% of charities surveyed experienced a rise in demand for their services and 89% envisaged that demand rising again next year. But less than a third – only 32% – felt confident that they would be able to meet this demand.
Charities at the same time experienced rising costs in the past year, with 72% stating that commercial costs had increased, and 80% experiencing rising direct costs across the board, it says. “It is clear that charities face a ‘perfect storm’ of rising demand for their services, rising costs and reduced funding.”
The scarcity of resources has led to a growing trend of collaborative giving, in which rich individuals are asked to combine their charitable efforts for the development and implementation of a common strategy to bring about a greater social impact. As the industry of giving evolves to include financial instruments, such as social impact bonds and venture philanthropy, the perennial debate of whether private charity could replace public welfare continues.
“The role of private capital in charity will increase because on the other side you have the governments who are cash strapped,” says Marconi. The transformation of philanthropy with the integration of business practices into social work; this whole challenge about measuring impacts so that you are effective in what you do; collaboration – all these are ways of addressing scarce resources,” he adds.
Australia’s National Foundation for Medical Research and Innovation says in a recent blog post that “the proliferation of small charities and foundations has been questioned by some in the community who see opportunities for consolidation and mergers that may lead to administrative efficiencies.”
“These efficiencies may not only be in the form of reducing overheads, but also in the form of redeploying limited resources to increase access to new and necessary skills,” it adds.
Governments and regulators have imposed rules on better transparency and governance of financial markets and corporates especially in light of the global financial crisis, leading to rising costs for many institutions. Charities weren’t spared of the tighter accounting rules.
