Profile Of The Uhnwi Philanthropist}

Profile of the UHNWI Philanthropist

by

Alternative Latin Investor

The current relative stability, the growing importance of the region to the global economy, and the wealth of opportunities for impact make LatAm an intriguing and attractive region for philanthropic investments.

Once virtually non-existent, LatAms philanthropic infrastructure is emerging with many possibilities for growth. In Mexico, 19 community foundations or similar organizations have been founded in recent years (Hispanics in Philanthropy).

In Brazil, the most advanced country in LatAm in terms of socially responsible corporate organizations, the number of foundations grew by 157% between 1996 and 2002. The number of institutions is set to steadily expand throughout LatAm as the social focus becomes increasingly important for the large business sector (Fernando Rossetti, secretary of Grupo de Institutos, Fundaciones y Empresas Brasil – GIFE).

Profile of the UHNWI philanthropist in LA

There are an estimated 300,000 HNwIs in Latin America with a total financial asset wealth of USD6.2 billion as of 2007 – a staggering 20.4% leap from a total of USD4.2 billion in 2005. The surge in sudden wealth is mainly linked to higher global commodity and oil prices. (Capgemini-Merrill Lynch 2008 World Wealth Report)

However, with philanthropic giving by wealthy Latin Americans well below their counterparts in other regions of the world – just 3% of financial assets donated compared to 12% by Asian HNWIs, 8% by Middle Eastern HNWIs; 8% by US HNWIs; and 5% European HNWIs. (Capgemini-Merrill Lynch 2007 World Wealth Report)

Interestingly enough, LatAm was also the region with the highest global concentration of Ultra-HNWIs last year. Around 2.5% (9,600) of HNWIs in the region were ultra-rich in 2007, compared to 2% in Africa and 1.1% in the Middle East. (C-ML WW Report 2007) Several of these consist of “first generation money clients” with larger portfolios than in established markets – a new segment for which competence is highly important. ****

The countries that generated the most HNWI wealth in the region last year were Brazil, Venezuela and Chile. (Ileana Van Der Linde for Capgemini in an interview with Andres Oppenheimer, El Nuevo Herald 18/08/08)

Although these figures point to an alarming socio-economic trend of severe economic disparity in LatAm, local analysts have cast doubt upon their accuracy. The rich in LatAm are known to make donations confidentially, in a bid to avoid excessive publicity that may expose themselves or their loved ones to kidnapping and/or extorsion schemes that are common in LatAm, they have pointed out. (Oppenheimer, El Nuevo Herald 18/08/08)

Education, Public Health and Food Distribution are the areas that receive the most backing by both philanthropic individuals and institutions in LatAm. (Anne Veneman Unicef executive director, La Nacion, 19/04/08)

The UHNWI Philanthropist in General

UHNWIs across the world account for 1% of the total HNWI population (about 95,000 people total) and about a third of its financial wealth, and are generally better informed, more sophisticated and aggressive than other HNWI investors when it comes to managing their assets. A segment made up of “thought leaders,” their behaviors and attitudes about wealth management set trends for HNWIs and financial institutions everywhere. (C-ML WW Report 2006)

In regards to philanthropic giving, they generally donate almost twice as much of their wealth to charitable causes than HNWIs and take up a very active role in managing and monitoring for optimal social results. For an UHNWI, they approach their philanthropic investments in much the same way as their traditional investments.

In recent years and in regards to LatAm specifically, UHNWI have been aggressively directing a higher percentage of its assets to a greater number of emerging markets, including LatAm, away from North America. This trend among UHNWIs indicates HNWIs as a whole are moving funds out of mature economies, such as the United States, and into attractive growth economies in other parts of the world. (C-ML WW Report 2006)

Structural Challenges in Giving

What is holding LatAm back in terms of UHNWI-based Philanthropic Giving is the lack of a well-developed culture of charitable giving, say the experts.

Wojtek Sokolowski, a researcher from the Johns Hopkins University Center for Civil Society Studies in charge of compiling a comparative list of donations in 36 countries, said perceived social status is what is different between LatAm and first-world countries with higher philanthropic giving percentages.

“In the US, the more a millionaire donates, the greater social status they receive. In a lot of Latin American countries, donations are not a symbol of social status,” he said.

As a result, institutionalised charitable giving in LatAm is restricted only to those who are bold, daring and/or of the wealthiest UHNWI-and-above bracket.

Billionaire Mexican businessman Carlos Slim, for example, has drawn unprecedented media attention to the role of philanthropy with his massive contributions in the last two years but it is free-thinking UHNWIs like Mexicos leading social entrepreneur and cosmetics business magnate Jose Ignacio Avalos Hernandez, who has founded several well-developed charitable business-managed institutions in the last 25 years, that LatAm needs more of so that the rich may follow, note observers.

A main obstacle to the proper development of charitable family foundations and the like has been a general historical financial instability in the region that has both prevented the UHNWI segment from making philanthropic plans in the long-run and from recognising that such institutions can contribute to success for an UHNWI’s other business ventures. (Mario Kreutzberger, president of Chiles Teleton Foundation)

Observers also cite blatantly unsupportive tax and inheritance laws compared to the US and Europe and the fact that the families of rich Latin Americans are typically more numerous – a fact that often persuades fortune holders to donate less to charity. (Oppenheimer)

Estate laws in LatAm reflect this reality in effectively restricting the ability of the wealthy to allocate money other than to heirs. Still, tax laws in general are slowly changing throughout the region to provide incentives for philanthropy. (Susan Raymond, Ph.D., a Senior Managing Director of Changing Our World, Inc. a leading philanthropic consulting firm – “Philanthropy in Latin America”)

“As an incentive, we are exempt from capital gains taxes and from social security matching for the 2,600 employees of the foundation,” said Jefferson Romon, administrative and financial manager for Brazil’s Fundacion Bradesco, who added that there are bills in Congress to increase them.

According to Eduardo Pannunzio, a legal advisor to Brazil’s Grupo de Institutos, Fundaciones y Empresas (GIFE), charitable entities can deduct 100% of their donations to cultural projects, up to 4% of taxes on earnings owed to the government. The same incentives, however, are not available for donations to educational or environmental projects.

“In Argentina, charitable entities can only deduct up to 5% of earnings in just four areas, one of which is to back political foundations,” commented Enrique Valiente Noailles, president of Grupo de Fundaciones de la Argentina (GDF). “We estimate that the annual volume of donations in the country is USD10 million. It’s a drop in the bucket, but if there were more incentives it would increase significantly.”(“The new philanthropy: Latin America Inc. turns to foundations as a strategy for serving social ends” Latin Trade. January 2007)

Other challenges include the region’s governmental penchant for bureaucracy and the lack of regulation for family offices that would assure potential philanthropic investors the long-term security of their investments. (Mariano Sards, president of FDI – Financial Design International, in INFOBAE article “Cada vez hay ms “family offices” 07/04/08)

The increase in philanthropic institutions in Brazil, particularly, has inspired the government to step up controls of the sector. Organisations there are newly required to disclose their sources of financing, list executives, and provide a breakdown of their plans and locations of operations as well as a host of supporting documentation on pain of closure or, if foreign, of expulsion from Brazil.

While campaigners criticise the move as one that discourages and burdens the mushrooming movement with additional bureaucracy, the fact that the government is pushing for legitimacy and financial accountability has been applauded by a number of stakeholders. (“Brazil increases scrutiny of NGOs” Alliance Magazine. 15/08/08)

The Alternative Latin Investor staff is comprised of finance and journalism professionals who create articles through a process of research, data gathering, and industry interviews in order to provide unique content regarding alternative asset investment within the Latin American region.

For more articles on alternative investments please visit www.alternatvielatininvestor.comFor same article with full images: http://www.alternativelatininvestor.com/philanthropy.php

Article Source:

Profile of the UHNWI Philanthropist}