Have the Giving Strategies of Family Offices Changed?

Audio Description

As a tumultuous year unfolds, have the giving strategies of wealthy families changed? That’s the question Bernstein colleagues Anne Bucciarelli and Heather George wrote about in the latest issue of Trust & Estates magazine. In their article “Philanthropy in a Pandemic” they reveal five key themes that have emerged from recent discussions with large family foundations and family offices with long-standing charitable track records. Today they join us to share their findings. What they learned about families’ top concerns, multi-generational dynamics, and the creative strategies being employed during this time of upheaval will be of interest to a broad range of nonprofits and those that fund them.

Transcript

00:00 - 00:12

Hi, everyone, I'm Clare Golla, Head of Endowment and Foundation Advisory Services at Bernstein, and this is Inspired Investing, where we inform and educate entities that strive to invest purposefully with and for a mission.

00:18 - 00:49

Today, I'm joined by two of my colleagues, Anne Bucciarelli and Heather George. Anne and Heather co-lead Bernstein's Family Engagement Practice, which focuses on fostering a shared view of family and philanthropic legacy for our clients. You've recently co-authored a piece for Trust and Estates magazine, and it's slated for publication this month. So this is a very timely conversation and it explores whether the giving strategies of family offices have changed during this pandemic. We love for you to share your findings with our audience today.

00:49 - 00:57

So maybe could you share a bit about the broader context as well as your approach? Sure. Clare, thanks. So excited to dive into this.

00:57 - 01:31

So we really talked to and we talk regularly to families about their giving strategies and specifically with regards to this paper, interviewed several families, and family offices are deeply engaged in philanthropy, about how COVID, as well as what's going on from a racial justice perspective, was changing and inspiring their giving. We really asked a range of questions. It ranged from, how is your philanthropy changing in response to what's going on in the world?

01:31 - 01:53

Has that created any tensions amongst family or stakeholders? How are you thinking about being creative? We got really great anecdotes about some creative approaches that families are taking. And then, this was an interesting one, is how are some of the things that you're doing today going to become part of the long-term fabric of your family's giving going forward?

01:53 - 02:27

There are really, I would say, five themes that resonated across many of the conversations we had. The first is really obvious, and that's around responsiveness. What are we doing today? The idea that partnering, whether it's public, privately, et cetera, can be greater than what we can do as a family foundation on our own. Governance loomed large and we got into a lot of conversations about what that looks like today and what it will look like in the future in response. This idea of what the time frame is for our giving. Are we in a spend-down mode or are we looking more for perpetuity?

02:27 - 02:38

And then a really interesting one. Many of the families were really thinking about how can we engage the next generation. They were seeing so much interest from the younger members of the family to get more involved in philanthropy.

02:39 - 03:04

Got it. So that's a lot. And you packed it all into one article. That's great. But it is, these conversations are going in these different directions. And as you mentioned, thematically, we do hear these five topics and so pretty often. And so, Heather, I'll turn to you to start with that topic of responsiveness. So donors definitely want to heed the call. How does that translate into action?

03:04 - 03:34

So for some foundations that showed up as accelerating gifts that maybe were planned for later on in the year or later on in the giving cycle; for others, it was increasing the amount of grants that they were otherwise prepared already to give and within their budgets to the organizations they're partnering with. Foundations, we're checking in with their grant recipients, with the organizations that they have good relationships with and determining how best to be helpful.

03:35 - 03:46

There were other organizations that really wanted to keep this idea of expediency and meeting needs as quickly as possible. So where in a normal course of business,

03:46 - 04:01

they might require or add some giving restrictions, for example, on gifts, targeted to very specific programs and very specific initiatives. But many stakeholders that we spoke with really recognize the need to keep the lights on.

04:01 - 04:23

And so where normally they may not be making grants to, for operational purposes of the nonprofit organizations they're giving to, in this environment, across the board, many were removing as much as possible any restrictions on gifts and also not just the restrictions for the dollars, but reporting requirements.

04:23 - 04:56

They know that these are organizations that are strained today and so therefore they want to be as helpful as quickly as possible. One unique story is a family foundation that is focused on college scholarships for low-income students and students that otherwise would not have the opportunity to go to college. And so with schools closing and college scholars having to go home, they were recognizing that these students no longer had their on-campus jobs, for example.

04:57 - 05:10

And so in response to that, for the first time ever, this foundation created a fund to make direct gifts, direct grants to individuals. Normally, that's not part of their day-to-day practice.

05:11 - 05:42

But this hardship environment really qualified the organization to set up this type of fund to support those scholars while they're at home. So that we thought was a representative of how innovative foundations are being to really respond to the needs of the communities that they're supporting. That's a great example. It speaks to the creativity and also just the importance of having a really strong ongoing relationship between a funder and a grantee organization.

05:42 - 05:51

Because if you're going to cut the red tape, you want to have that comfort level that everyone's on the same page as to what the end goal is and how you're going to get there.

05:51 - 05:53

So that's fantastic. Yeah.

05:53 - 06:26

Just to piggyback on that, Clare, the word that we heard from the directors of these philanthropic efforts was trust. I already have developed that trust-based relationship with these nonprofit leaders and operators. Now is the time to rely on that trust. Yeah, that's great. Good. So it's less of a paternalistic relationship, more of a partnership, so to speak. So the second is, speaking of partnerships, right. The second theme is partnerships. How apropos. So what kind of partnerships or alliances are we talking about here, Anne?

06:26 - 06:51

Yeah, sure. So what came up in our conversations were, I would say broadly across three different types of partnerships. So the idea of COVID relief funds being used, public and private partnerships, and then thinking about corporate donors and combining that with the private giving. And we heard some really interesting examples there.

06:51 - 07:03

One family that we spoke with, every year, he sent out an email to his network and sort of the same 10, 15 people respond with a similar level of giving.

07:03 - 07:29

And and while that's great, has struggled to really amplify that amount and in response to everything going on in recent events, and this was actually a little bit more related to the Black Lives Matter movement, he really sent out an email to his network, again, talking about how he got creative with a partnership with a local nonprofit that was providing support to underserved communities and actually took an approach,

07:30 - 08:03

it's a strategy called an income sharing agreement, and did a twist on it. And he was really appealing to everyone in the network that if this cause resonates with you, why don't you put your money for a good cause, but also potentially get a return on an investment. So let's almost create a for-profit circle and join forces with a nonprofit to create good. And what ended up resulting is over seven hundred and fifty thousand dollars was raised in just four days. So that was really striking. That's a great story.

08:04 - 08:28

That type of initiative is really attractive to entrepreneurs. I've often mentioned that, I think down the road, if we look 20, 30, 40 years down the road, the whole industry of philanthropy may look very different. And we're seeing the lines between for-profit ventures and corporate social responsibility and philanthropic endeavors all blurring. What a great example of that.

08:28 - 08:30

So let's move on to another,

08:30 - 08:46

it's sort of an evergreen topic, but it's really come up in full force, which is governance. Heather, share a little bit about this theme and how it came up in your conversations. Yeah, so I agree, governance is evergreen, but it tends to be the least sexy.

08:46 - 09:11

One of the realities that we saw significant market movement in March, so many interviewees that we talked to were really taking the opportunity to revisit their investment policy statement. And in many cases, there wasn't necessarily a need to make drastic changes. But they felt comfort that they have this document to rely upon and to guide any potential changes.

09:11 - 09:33

The other areas that show up for governance, particularly for family foundations, are around formalization of decision making processes. And many of our interviewees were actually what I would call first generation wealth creators. And what we find in practice is particularly while that first generation is still living, governance tends to be a little bit more loose.

09:34 - 10:06

It's really after that first generation passes away and frequently more assets roll into the foundation that G2, the second generation really rises to that leadership opportunity and begins to put in more formalized governance structures. And that absolutely came out in our discussions. The third opportunity that came out in our discussions was a really neat example from the family that we work with that historically had held foundation board meetings in person a couple of times a year.

10:06 - 10:16

In actuality, the family stakeholders live all over not only the US but really all over the globe. And several times a year they would convene, in this case, a small town.

10:16 - 10:47

And they would hold the family board meetings, and the previous governance structure allowed people to request to attend those Family Foundation Board meetings, one or two family members can attend in person. But they took this opportunity of being in this virtual environment seriously and said, look, why are we limiting it to one or two family members? Let's actually open it up to all, even if they're not on the board, to join our family foundation board meeting.

10:47 - 11:09

And what they've seen is an increased energy and increased engagement. And they're thinking that at a minimum, for at least one of the annual board meetings to keep it in this virtual environment even once we're back convening in person, just to keep that energy, momentum, and engagement alive. Well, and when you gather more people and bring more people to the table, virtual or in person,

11:09 - 11:18

right, you're going to get some questions in terms of, so this is how we've been doing it all along. Why do we have to keep doing it like that looking ahead? Right.

11:18 - 11:49

So this is a way to, it's a door that opens to new, fresh ways to govern and make decisions going forward. That actually, so, I'm curious, Anne, I know that you did find some additional interesting dynamics between G1 and G2. Do you want to speak a little bit on that? Yeah, I think Heather touched on a few of them, which is that in many of the conversations we had, we had a G1 who was really the wealth creator and the visionary taking the active role.

11:49 - 11:55

And the board was really more to vet ideas.

11:55 - 12:30

But at the end of the day, it was really G1's decision of where the giving was likely to occur. And so for all the reasons Heather mentioned, that has an impact on governance. I think what was clear in one example was, they were about, I would say maybe a year, a year plus following the death of G1 and the son was rising and stepping up into that leadership position. And so this foundation was really in a time of transition in general.

12:30 - 12:38

And then you had the 2020 pandemic hit, plus all the other tensions that we're talking about.

12:39 - 12:53

And in a way, they remarked that, we're actually glad that if a transition were to occur, might as well occur when everything else is going on in the world that's causing us to rethink personally our philanthropic strategy.

12:53 - 13:15

And now this is my vision and thinking about how I'm going to juggle between the vision of my father, where that overlaps with my philanthropic interests, where I see the need in the world today, how that's changed even in the last six months, given everything going on in 2020 and how I'm getting the rest of the board and the family involved.

13:16 - 13:46

The other thing that I think is unique is that in many of these situations, you may have significant balance sheet assets that are going to flow through to the foundation, which will greatly change the need for governance and perhaps even what that foundation looks like. If you have a goal for this foundation or charitable giving vehicle to last beyond your lifetime, you have to really think about what the markets are doing, what inflation is doing, and what you're spending and really ensure that that's appropriate. For many of these families,

13:46 - 14:16

that rule didn't really matter because they knew that a significant additional wealth was going to be coming in the next five years, decade, 15 years. And so that dramatically changes as well, what governance might look like and even the spending policy. But then allowing the next generation to have the flexibility to implement it or deploy, or however you want to say it, in a way that's relevant today or looking ahead is a really interesting challenge.

14:16 - 14:35

And I think also the idea of a foundation being a perpetuity versus spending today or during your lifetime is definitely a notion that is changing often. And so I'm curious, Heather, this leads into this next theme of spending down versus perpetuity.

14:35 - 15:01

I'd love to hear what families were saying about that. Sure. I mean, I think Anne touched on this. So we talked to several interviewees where maybe previously there was a spend-down mentality, but particularly with a generational shift and a generational leadership change, there might be a different desire in the family to really keep this foundation into perpetuity or to as long as possible.

15:01 - 15:16

So we had one interviewee, for example, that at the second generation taking leadership, really wanted to shift that focus. But what that meant was really examining the costs, for example, that the foundation already had in place where they were operating

15:17 - 15:45

on this spend-down mode. Suddenly you now need the resources, the financial resources and the portfolio resources to last for a much longer time horizon, they absolutely need to change their approach there. Another example related to spend-down versus perpetuity that rose to the top as an observation was particularly several examples, actually, where the G1 wealth creators, first generation wealth creators were still living.

15:45 - 16:17

Only a portion of their assets today actually reside in the family foundation and part of their estate plan actually allows and intentionally will pass many more assets into that foundation vehicle over time when both mom and dad, for example, pass away. So in this case, the foundation today is sizing current grants to be five percent of a future total rather than five percent of today's assets in the foundation.

16:17 - 16:36

So that's interesting. So they could actually spend-down the foundation in its entirety before it gets funded again at a much larger level. In practicality, what happens is they just add new assets to the foundation over time. I mean, that's just interesting.

16:36 - 16:53

Yeah, or in some cases they just gift directly from the balance sheet without even the assets making it into the foundation. So in other words, they're really sizing their philanthropic strategy and their grant making and gifting, their charitable donations from the total pool, regardless of how much is actually just in the foundation.

16:55 - 17:14

That, it makes sense, though, when you think about it in terms of establishing these really strong relationships with key institutions, in terms of grantees, while multiple generations are still alive and able to see this. Right. So that's an interesting theme there.

17:14 - 17:43

Tell me a little bit, Anne, about, you know, as we're talking about moving from one generation to the next, what are some examples of how you've seen G1 and G2 interact, or G1 bringing G2 into the fold? Sure, we oftentimes start the conversation when we're starting to branch into multiple generations and the family's getting larger and larger.

17:43 - 18:16

And there's geographic differences. There's age differences. There's certainly a lot of different biases and passions, if you will, from a philanthropic sense, some that may overlap and many that may be wildly different. And if you can start to have these conversations early, so start talking about what matters amongst the generations and really base it around values. And if you can get the values right and everyone understands and respects, here are individual values. Here's how that then translates.

18:16 - 18:44

And we link the values to the causes that inspire us and the change that we want to see in the world. It creates a forum where everyone can talk about what's important to them, but then inevitably you start to find some overlapping values and causes. And then there's a lot of different ways you can start getting the next generation involved, respect any unique areas of interest, but find cohesion amongst values and causes that the family wants to unite around.

18:45 - 19:18

One big thing that we saw that came out, and it was a really interesting story. A family that we've worked with for many years, last year had remarked that the family office who is now going on Generation 5, recognize that there was a need for a next gen board. Their family philanthropy was quite established. And so their goal was to have everyone convene and have that fifth generation come together onsite, let's have some fun.

19:18 - 19:32

But let's also give you that education. Let's give you that family background around what our foundation does, what our philanthropy means to us, but also the practical, here are some skill building and some knowledge and education that you'll need as future leaders.

19:32 - 19:56

And what happened was with COVID, they were feeling that, the particularly the younger generations were just kind of getting Zoom fatigue. And the idea of converting what would have otherwise been this onsite fun, long weekend activity and retreat would end up sort of becoming a burden, not fun, and not have that impact.

19:56 - 20:10

And because they had been so meticulous in thinking through what is success, what's failure, they decided to push it off and they said, you know what, this is so important. We really want everyone to enjoy the experience. We really want everyone to be tuned in and focus.

20:10 - 20:38

And if that means that we wait six months or a year, then so be it. I think what it all, though, boils down to, is communication and values, and if you can really have that conversation around that and come together as a family, then you can really start charting out a path to engage the next generation that gets them inspired versus where it feels like an obligation or a challenge.

20:39 - 21:02

That's great. So I'm curious, I'm going to sum it up, because we're getting to about that time. I'd love to know from each of you, Heather and Anne, if there are any final thoughts you have about what you learned overall or what surprised you most in this study? Maybe I'll start with Heather. Sure. I'll go first. Very little surprised me other than

21:03 - 21:27

Just the deep passion that was really ignited in the hearts of already generous philanthropists, right, that they were really mobilizing, capturing this momentum and this energy and not only taking COVID, but building upon the other civil justice issues of the day to really rise to the challenge, really just making the most of this opportunity.

21:27 - 21:41

And that, to me was just so heartening. If I could sum it up, one of our interviewees offered me just the fabulous, succinct, eloquent quote around philanthropy. And if you'll indulge me, I'd love to share it.

21:41 - 22:04

She said, Philanthropy plays an important role during tinderbox times. Right. And that is really what today is. And is the perfect opportunity, perfect time for foundations to step up. And I think across the board, that's what I saw. It's hard to follow that quote. But what I will say, I'll agree with Heather.

22:04 - 22:18

I wasn't necessarily surprised. I was inspired and excited to see how important giving was to all these families, how much it was a part of the fabric of what defined them and how creative they were being.

22:18 - 22:42

We're seeing a lot of nonprofits, of course, that saw, that were scared, Heather said. We just want to keep the lights on. And they were seeing assets being redirected, whether it was COVID-related or whether it was tightening of purse strings. And particularly if you're a nonprofit that thinks that, well, right now I'm an arts organization and I'm not sort of headline news.

22:43 - 23:15

We had many clients, who said, that's exactly where I'm stepping up my efforts, because I know that they're losing a lot of support. And so that, I had a conversation the other day with someone who is struggling with this. And I said, you know, these are the conversations that we're having with donors. And he said, wow, I didn't think of that. I thought, how can I ask, how can I ask for support for my foundation when there's so much else going on in the world that my organization is, my foundation isn't necessarily tied to directly. And that then spurred some creative thinking on his part going forward. So it's just incredible conversations we're having.

23:16 - 23:29

It's excellent. Well, thank you both. I really appreciate your time today. And thanks for putting together that piece. It's a great article and I'm looking forward to getting it out there. Really appreciate you being here.

23:29 - 23:46

And thank you all for listening. At Bernstein, look, we're here not only to support your financial well-being, but also to help to connect you with other peers and resources. So don't miss out on these discussions. Subscribe to Inspired Investing on Apple podcasts, Google Play, Spotify, or wherever you listen to podcasts.

23:46 - 24:21

And if you'd like to learn more from Bernstein's Endowment and Foundation Advisory Services, please explore the link in this episode's description. Also, if you do have any topics you'd like for us to cover, please do e-mail us with your thoughts, questions, and feedback to insights@Bernstein.com and be sure to find us on Instagram or Twitter at BernsteinPWM. So with that, thank you all very much. And until next time. Bernstein: Making money meaningful for individuals, families, and foundations for over 50 years.

24:21 - 24:23

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Host
Clare Golla
Managing Director—Head of Foundation & Institutional Advisory Services

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