Doing well by doing good might be a motto for socially responsible investment and the same surely applies to a growing trend in the world of charitable giving: venture philanthropy.

Doing well by doing good might be a motto for socially responsible investment and the same surely applies to a growing trend in the world of charitable giving: venture philanthropy.

The term relates to how venture capital techniques – such as seeding business start-ups by buying into a share of future returns – are brought to bear on charities, ranging from funding of education programmes, homes for the poor, or business development in Africa.

Rebecca Eastmond, head of philanthropic services UK, at JP Morgan Private Bank, sees this as a powerful trend, but it has a long way to go in the UK, where awareness is at a relatively young stage.

“This is all part of a trend towards effective giving. There are not enough philanthropic dollars around to achieve everything,” she told this publication in a recent interview at the firm’s offices in London Wall.

Another term that can apply here is “impact investing”, conveying the same idea of using investments to push forward a social, ethical or environmental objective, such as helping underprivileged children with schooling.

Examples include Bridges Ventures (chaired by Sir Ronald Cohen), and instruments such as social impact bonds (one was used, for example, at Peterborough Prison).

Impact investing can be used to finance projects in Africa, getting people to develop businesses that can eventually make a profit.

These projects can compare very favourably with mainstream private equity, even though making a high profit is not necessarily the primary goal. On one fund operated by Bridges Ventures, an exit from a Harlands of Hull project – designed to save jobs in a poor area - achieved an internal rate of return of 84 per cent, according to the BV website. Another project (SimplySwitch) clocked up an IRR of 165 per cent. (IRR takes account of the often complex timings of such deals).

A charity called Impetus Trust, co-founded by Stephen Dawson of ECI Partners, a private equity firm, is another example. Impetus was the first UK charity to adopt venture philanthropy as a way of raising funds (source: Citi Private Bank and Knight Frank, The Wealth Report). As a sign of the growth of this sector, there is now a European Venture Philanthropy Association, with 24 members from 18 nations.

Experience

Eastmond came to the job at JP Morgan in 2008 having had direct experience of building, and later running, a philanthropic venture. She ran The Prince’s Foundation for Children and the Arts. She fondly remembers how the institution went from a position where it had no turnover in terms of activity to where it now serves around 33,000 children across the UK.

Philanthropy forms a key part of any conversation that JP Morgan holds with its existing and future clients, she said.

The private bank holds dinners, one-to-one meetings with clients and holds workshops/seminars to find out what clients want, gauge trends, and hear ideas.

The recession and economic volatility have not dented philanthropy, she said.

“In the last year, there has been a real growth in people thinking about giving and their role in society, as to what persons of wealth should be doing,” she said. “There’s also been an increase in the number of people setting up charitable foundations over the last year,” said Eastmond.

“We are working with four new foundations at the moment; and it seems to us that a new and significant number of people want to give. I wonder whether there is something about people saying `I have got a part to play in society’; this has always been a feature of the United States,” she said.

The Gift Aid tax benefits – recently pushed by the UK government – have helped drive this process, she said, because it gives donors more flexibility about the charities and causes they can support. (Gift aid increases the value of donations to charities by allowing them to reclaim taxes on a gift).

Last November, Barclays Wealth published a study that confirmed that philanthropy should also be at the front of wealth managers' minds if they wish to keep pace with current trends. It surveyed 2,000 high net worth individuals around the world and found that close to a quarter (23 per cent) regarded charity as a “top spending priority.”

Coutts, the private bank, recently found that the number of donations of £1 million (around $1.6 million) or more is the highest since before the early phase of the credit crisis. The value of donations over £1 million is showing signs of recovery; in 2008/9 the value was £1.548 billion, which is up £143 million from £1.405 billion in 2007/8, although lower than levels in 2006/07. The number of donations from individuals remains more or less consistent – with 100 donations compared to 96 in 2007/8; and 102 in 2006/7.