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I WANT TO LOSE A FORTUNE

BUT I INSIST ON LOSING IT WISELY

Giving money away is easy, assuming you have it to give. Giving it away to good effect is another matter entirely, says Matthew Bishop of The Economist, in a report on smarter philanthropy for the current issue of Intelligent Life magazine ...

From INTELLIGENT LIFE magazine, September 2007

When Warren Buffett gave away his vast fortune last year, he observed that philanthropy was a “tougher game” than business. Commerce sets about the easy problems, whereas the hopeless, intractable cases are left to philanthropists. Who can help the philanthropists?

That was the question two London-based partners of Goldman Sachs, Gavyn Davies and Peter Wheeler, found themselves asking after having made their fortunes when the investment bank listed its shares in 1999. They wanted advice on how to give away some of their new riches, but there was nobody to ask. So they decided to create New Philanthropy Capital, a non-profit organisation, to provide research and consultancy to philanthropists. “Peter came into the office with a thought,” recalls Mr Davies. “In financial markets in the late 1990s there was an enormous industry dedicated to making the flow of finance as efficient as possible, putting capital to use where it gets the highest returns. So why couldn’t the same be true of philanthropy?”

Six years after it was founded in 2001 NPC has a staff of 40 and is a main source of professional advice to Europe’s rapidly expanding regiment of philanthropists. One of its early clients was Absolute Return for Kids, a foundation set up by a group of hedge-fund managers, led by Arpad Busson, which makes headlines by raising millions each year by auctioning off such treats as a dance with Richard Gere or a dinner with Mikhail Gorbachev.

Many of NPC’s other clients have made their pile in finance, especially in hedge funds and private equity. The money-men and -women seem to like the way NPC chews over data such as the rate of return on getting a persistent truant to attend school regularly (1,160%).

A typical client is Ramez Sousou, of TowerBrook, a London-based private-equity firm that had once been owned by George Soros, a billionaire philanthropist. Sousou was inspired by his former boss, and, with his partners, decided to give away some of their fees and profits. They turned to NPC to help them work out how. The TowerBrook Foundation matches threefold any charitable gift by its employees, as well as supporting charities helping children. “We wanted everyone in the firm to be involved in giving,” he says, “and children emerged as a cause everyone believed in.”

NPC helps donors to choose what kind of charity to chose, and advises them on how to measure the effect of the gift. This sort of expertise has long been available in America, where the business of giving is much larger and has a history dating back to the great 19th-century philanthropists and beyond--something that faded in Europe when the state took it upon itself to be the chief source of welfare.

NPC is alone in publishing the charitable equivalent of investment banks’sectoral research, which in the world of the needy means such sectors as domestic violence, or youth at risk. Like so many City scribblers, its analysts assign charities the equivalent of a “buy” or “sell” recommendation. Not even in America do givers get that sort of service--which is one reason why NPC is thinking of publishing research there, too. The research is given away to potential “investors”. Indeed, the dissemination of research is part of NPC’s mission to improve the efficiency of charities, even though it admits this “screws up our business model”. The firm covers only a quarter of its costs with fees from clients.

NPC usually encourages its clients to focus on a specific issue, and then to support several different organisations or projects within that area. A philanthropist who wants to help disadvantaged teenagers might combine giving money to a few start-up charities (which risk failing as organisations) with a gift to a new scheme by a well-established charity (the project risks failing, but the organisation does not). It also advises giving to charities dedicated to changing policies, as well as those helping people directly.

In business that would be called a synergy, and it appeals to the commercial brain. “This portfolio approach has given us broad sector expertise, which means we can really add value,” says one philanthropist who supports, among other things, charities helping refugees, and has taken NPC’s advice. “For instance, we can hear something from a service provider and pass it on to our advocacy charity, and vice versa.”

Perhaps because of its City roots, NPC often takes the position that “if you can’t measure it, then it is not worth supporting,” says another client from the world of finance, who thinks that this can be simplistic when a charity is trying something broad and general, such as changing the tenor of a political debate.

That client is delighted with NPC, nonetheless, as is the philanthropist who supports refugee groups: “I wanted to start making strategic grants very quickly”, says the hedge-funder, “without having to get up the learning curve fast myself or to hire my own staff to do it. Using NPC enabled the foundation to double the size of its giving in the UK.”

It may be no coincidence that NPC also “has a bias against big charities,” says one client. “NPC wants to recommend charities that are efficient, and it says that big charities just aren’t efficient.” Smaller charities are also far easier to analyse, as they tend to be more focused. A big charity, such as Barnardo’s, “does about 200 different things, all of which you need to understand to rate it,” says Martin Brookes, head of research at NPC.

A potential problem here, says one client, is that, “It’s not clear that charities actually understand the principles of working with intermediaries such as NPC, or what it means to be transparent. Charities must start to act more professionally.” Ultimately, NPC’s recommendations are only as good as the information it’s given--and charities are notorious for opaque, often stale data.

But charities are more likely to do the right thing when donors are methodical. NPC is making it easier for them--for you--to do just that. Your money works better and your endorsement of an organisation such as NPC sends a message that charities must spend every penny wisely, because they are being watched.