Category Archives: Philanthropy & Giving

Impact Investing, Philanthropy & Giving, Social Responsibility, Something Else Good, Venture Investing

New Age Wealth Management

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The investment world is fast evolving.  Ten years ago, structured finance and hedge funds were the rage.  Today, hedge funds are increasingly becoming mainstream, along with alternative strategies of private equity and real estate investments, while structured finance, with securitisation and instruments of mortgage-backed securities, has borne a taint of shame with the implosions in the global financial crisis of this decade past.

The GFC has changed the landscape and the mindset.  From regulators in capitals of the world to investors on the street, the attitudes towards financial institutions and financial products are markedly different from before.

The results – firstly, savvy investors are trending towards a greater emphasis of diversification across a full spectrum of asset classes, and the spectrum keeps getting stretched.  In an economic environment of low returns on traditional assets of stocks and bonds, coupled with inflation worries stemmed from prolonged quantitative easing in most key markets, investors continue to seek out new investments that could offer higher returns and lowest correlation.

However, beyond this approach which is still based on the age-old modern portfolio theory of diversification, investors are taking a more holistic look at their wealth management strategies.   As investors get increasingly well-educated and sophisticated, there is a continuing greater expectation for specialist knowledge and expertise that comes through in the financial services available and provided.   With this, there is a demand for higher level of customisation of products and services that meet investors’ unique needs and circumstances.   Investors today have a better idea of what they would like to have or see in their asset portfolio or returns, and many wish to play a more proactive and leading role in structuring investment solutions that appeal to their appetite, rather than just as passive recipients of advice and recommendations.

Yet, what is most exciting and positive is that more investors are looking to apply their investment capital towards social good.   According to the results from a survey conducted by Capgemini and RBC Wealth Asset Management in 2013, as high as 92% of around 4,500 high net worth individuals in 23 countries indicated that having social impact is important to them. For high net worth individuals under 40 years old, more than 75% view this as extremely important.

There is therefore demand, and significant growth potential, for investment and wealth management professionals to rise to meet such needs and challenges.

For example, investment banking giant Morgan Stanley is putting more focus now than ever before on its wealth management division.  The draw of wealth management opportunities has prompted financial institutions to shore up capability and team in the sector.    However, it isn’t an equation of simply transferring people and resources from the sell side to the buy side, as the wealth management team will need to do more than analysing and deciding which stocks or bonds to buy or to recommend to clients.   Such traditional advisory business is already fairly established for some time.  Some may actually be experiencing loss of assets as clients now seek different service experience or wider product offerings from alternative providers or platforms.

Instead, the shift presents two major approaches that should be explored – developing wealth management advisory tools and platform that would offer high net worth individuals and wealth management clients the ability and convenience to proactively engage with and manage their investments and portfolio, and, establishing capability and resources that would assist and provide client investors with the knowledge and means for making social impact with their investment capital.

Once upon a time, not too long ago, social responsibility investing may only take a backseat or invite a ridiculed look.  Today, it comes up more frequently and may increasingly become a key criteria or part of an investment portfolio.

BofA Merrill Lynch has launched a “Green Bond Index”, to track the performance of some US$32.3 billion in value of “green bonds” issued by some 29 quasi-governments and corporates, to-date, that fund climate or environmental sustainability projects.   “Green bonds” have seen multi-fold growth in 2013 and 2014, and is expected to continue growing in number of issuance and types of issuers.   Indices such as this afford investors the means of analysing and tracking the available opportunities and the financial risk-return profile of green investing.

According to Rockefeller Foundation, impact investing will continue to grow in Asia.   Assets-under-management in Asia Pacific are estimated to exceed US$16 trillion by 2020, and impact investing would likely and hopefully be a big part of that.

 

 

Impact Investing, Philanthropy & Giving, Social Responsibility

More Desire for Good

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As high as 92% of around 4,500 high net worth individuals in 23 countries indicated that having social impact is important to them. For high net worth individuals under 40 years old, more than 75% view this as extremely important.

Such encouraging results from the survey conducted by Capgemini and RBC Wealth Asset Management in 2013 shows that the world is on the cusp of potential transformational changes, if the widely shared desire for good can be translated into real positive action and impact.

 

 

Impact Investing, Philanthropy & Giving, Social Responsibility, Sustainability

Global Cities of Power

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Hong Kong and Singapore are expected to rank just after New York and London, as centres of wealth, knowledge, power and influence for the world, by 2024.   The Wealth Report 2014, published by Knight Frank and Wealth Insight, referred to these cities as “Global Cities of Power”, with Shanghai and Beijing also projected to be in the Top 10. The others are Dubai, Miami, Geneva and Mumbai.

As the two major Asian financial centres, Hong Kong and Singapore are already key centres for financial markets, financial services and wealth management.

“To whom much is given, much is expected”, as an old saying goes. Becoming a “Global City of Power” does not involve just a measure of wealth, but also implications of growing knowledge and power base, with the ability to influence and shape world development.

It is important to then ask, in the realm of social responsibility, impact investing and directing wealth towards philanthropy and social giving, whether these cities are also witnessing significant interest and establishing infrastructure towards funding the social good?

Similarly, with Shanghai and Beijing, leading China in becoming the world’s Number One economy, as well as Mumbai with respect to India’s impressive economic story, the development of social responsible framework and focus on sustainable growth are key areas.    While New York, London, Miami and Geneva are developed economies, with more established practices for social responsibility, the new and emerging economies may have more to learn from the developing countries in embracing sustainable development in terms of shared or common experiences.

Watch the movers and shakers.

Philanthropy & Giving, Social Responsibility

Tackling Hong Kong Charities

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Charities established in Hong Kong may apply for a status of an “approved charity” from the Inland Revenue Department of Hong Kong.  Such status would confer on the ‘approved charity’ exemption from Hong Kong profits tax, and also allow donations made to it to be tax deductible for the donors who are Hong Kong taxpayers, according to Hong Kong tax law.

The main qualifying criteria to be an ‘approved charity’ is that the activities of the organisation must be exclusively for charitable purposes.   The profits of the organisation must be applied for charitable purposes.    The Hong Kong Inland Revenue Department may require an approved charity to submit books and accounts for review every three or four years, but there is no requirement for approved charities to submit annual financial report.

The somewhat bare-bones requirements make it relatively easy to establish charities enjoying tax benefits in Hong Kong, which could cover social enterprises of different types, scale and charitable purposes, although business enterprises albeit with social purposes or social enterprises with a business or financial purpose would be excluded.

The Hong Kong tax authority has outlined four types of charitable purpose in a tax guide: (i) relief of poverty, (ii) advancement of education, (iii) advancement of religion and (iv) other purposes of a charitable nature beneficial to the Hong Kong community.  While the last category requires the benefit to be towards a cause within Hong Kong, the other three categories can be directed to causes or beneficiaries outside Hong Kong, allowing the ability to establish charities in Hong Kong to support social needs in poorer areas or countries in Asia.

Yet, the list of “approved charities” in Hong Kong, numbering around 7,500 according to data from the Inland Revenue Authority for the year ended 31 March 2013, is not an exhaustive list of organisations in Hong Kong that have been formed or operating for charitable causes.  There are large number of such organisations with stated social aims or missions but not ‘approved charities’ for tax purposes, as this is not a mandatory requirement.   Hong Kong does not administer an approval or registration system for charities.

Charities may also be established in a number of different forms, without any specific statutory prescription on what is or is not acceptable, leaving it somewhat flexible for charities to be structured as appropriate to meet the needs of the organiser, funder or funding method.   Most commonly, charities in Hong Kong are registered as companies limited by guarantee, but there are also charities registered as trusts or societies.

However, the regime without a central record of charitable organisations or regulatory supervision may be changing, if the Hong Kong government adopts the recommendations of the Law Reform Commission, as published in a special report on charities, issued on 6 December 2013.   The report includes recommendations for legislative reform to deepen the regulatory landscape for charities.   There is a push for “approved charities” and all charitable organisations that solicit cash or other donations from the public to be subject to a registration scheme.   The Commission also recommends that there should be a clear statutory definition of what constitutes charitable purpose, to clarify what the term could encompass. A framework for financial reporting may also be put in place.

In relation to financial report, it could involve first having to obtain a fundraising authorisation from a regulatory authority, and being subject to specific requirements to prepare financial statements or auditors’ report depending on the level of funds or income.    Tax-exempt charities may also be required to publish certain information on their financial status and operational activities annually.

Whether the recommendations of the Law Reform Commission would be implemented is still subject to further study by the Hong Kong Home Affairs Bureau, who will seek input and views from relevant authorities and government departments.

Meanwhile, potential donors and philanthropists should be mindful of both the advantages and existing weaknesses in forming or donating to charities in Hong Kong.   For instance, a careful study of the applicable legal status or requirements for a given charity should perhaps be conducted, as should attention be paid to the level of financial reporting of the charity.

In a Citigroup study, Hong Kong is projected to be one of the wealthiest economies by 2020, ranked just after Singapore.  With this, along with Hong Kong’s established standing as a key international financial centre and mature infrastructure for financial activities, charitable and philanthropic activities in Hong Kong should continue to grow.    A well-developed legal framework that ensures accountability and transparency of charities and social organisations should be welcomed.