This is an extract from the 2021 Philanthropy And Impact Investing In The World Of Family Offices Report. Download the full report here.
STARTING OUT
The very first thing we did when founding Jamma was to enlist legal support from professionals who operate in the philanthropic space. The Charity Commission is very observant off people using charities for their own gain. It is therefore important, as a family, to structure your foundation in a way that is easy to operate independently. We were advised that in our specific case members of our family cannot take salaries or even claim back expenses. It is for good reason but imposes restrictions when some family members have philanthropy as full-time occupation.
One of the first pieces of advice we received from other families in the same situation was to avoid allocating all our earmarked funding for Philanthropy directly to the Foundation as once it is in – it is in. Should your circumstances change in the future this part of your wealth is for all practical purposes, inaccessible.
The Foundation is, and rightfully so, kept under the watchful eye of the Charity Commission. They may for example not always have the same view as you about what qualifies as charitable activities. Impact Investments in rural Africa is a good example. Can they really be charitable? It can therefore be prudent to let your Family Office undertake some investments or other engagement where the charitable objective can become the subject of debate.
DEFINING IMPACT
Impact Investment is by definition anything that makes an impact. Whether that is a technology start-up or a conservation project, if both create positive impact then both can be classified as Impact Investments.
It is a blurred line with typical investing and is also a loose and misunderstood term. To offer an example, we have invested in The Conduit, a social membership club in London with a purpose of bringing people together to address the current challenges facing the world. The club is open to anyone who has an interest in making a positive contribution and there is a shared belief that if we use this platform we can have even more of an impact together. 1+1 becomes 3.
While a social club may not instantly register as an association of ESG, it is about making an impact and actually, is the perfect example of Impact Investing as a collaborative way to make long-lasting change that lives on.
MAKING A CHANGE, ONE WAY OR ANOTHER
Impact Investing has two definitions at Jamma. Firstly, we see all our grant making as investing. We have a clear expectation that all projects we support shall return some sort of measurable non-financial result.
Secondly, there are the investments made for financial gain but something we would typically only consider if there is real passion for the cause it represents plus quantifiable social and/or environmental benefits. We call this Impact Investment.
Grant and Impact Investing are often seen as two entirely different areas but for Jamma they are both part of our tool kit. It is an act of philanthropy to invest in a high-risk environment. Even if I do believe you can solve many problems with a commercial approach, there is often a need for traditional grant making to prepare the ground in various ways as the necessary institutional framework may not yet exist. There can be grant dependency making it difficult for people to accept alternative, more sustainable solutions. Many western NGOs are too little result oriented and believe businesses will operate at the expense of people and nature plus remove the reason for their own involvement. Many of these obstacles can only be addressed through traditional Philanthropy often over many years and by doing it this way you familiarise yourself with the situation on the ground.
You become acquainted with the various participants, structures and cultural differences which help you to both reduce risk and avoid mistakes.
PHILANTHROPY AS AN INROAD TO IMPACT INVESTING
By being active on the grant investment side we have a presence within the community. Through knowledge of the area, we come across worthy causes and organisations that are embarking on creating social change. We can partner with such organisations and create our own Impact Investment opportunities.
Whenever we invest there must be a great deal of passion in combination with clear objectives. You need to be passionate about making change so you can face all the challenges lining the road to success.
We partake in a great deal of conservation initiatives in Southern Africa. Impact Investment opportunities are brought to our attention on a regular basis, mostly because it is a part of the world where many do not want to invest. While making money by starting business is never generally ‘easy’, it is mostly incredibly difficult in Africa due to the several risk factors at play not found in more developed economies.
Had it of not been for our passion for this part of the world and our ambition to protect the planet and its people, we would not be investing here at all.
However, we see this type of risk taking as part of our version of philanthropy. We are motivated by the impact we can make plus the possible financial, social and environmental rewards.
PORTFOLIO APPROACH
An approach to gain time and substantially reduce risk is to team up with local professional incubator organisations. They make causes investable and do most of the groundwork by performing extensive due diligence.
We have identified a small number of such incubators and decided to adopt a portfolio approach to part of our impact investment activities. This is a new strategy for us aimed to reduce risk and consolidate opportunities. We will use a strict set of criteria to invest in 10 to 20 start-up companies per year in a standardised and disciplined manner.
Even if one investment fails you would hope that the portfolio would still generate a return which in turn, can be used to fund our ongoing philanthropic work. We will hire specialist talent to build and manage this portfolio.
When we first created Jamma, we did not put any resources into the Foundation other than money. We had the idea that we could handle everything ourselves as a family. We planned to support the work of established and well known NGOs but soon realised that too many are focused on output instead of outcome. We got worried that our donations would be lost in the system or poorly attributed to the right causes. This circles back to one of the key differences between many NGOs and the commercial world which is business acumen.
Out of sheer frustration we got more and more involved with the projects we supported and soon realised that even if we did not have financial constraints, we were constrained by time and as a result, limited to the number of projects we could engage with.
IT TAKES TIME
Many philanthropists offer a sum of money and follow the progress through regular project reports. However, this has never been enough for us. We see our own grants as investments aimed to make long-lasting well-defined change that you can tangibly see only in years to come. This requires a major effort with a lot of time devoted to each project. We before long found it necessary to expand our team to be able to work hands on with the project we chose to support. We handle grant and Impact Investment the same way.
If you have the ambition to make real and lasting change, there is an ever-present risk of failure. We therefore need to structure our Impact Investments in the same way we structure our financial investments in the Family Office.
We have a logistical framework for both setting benchmarks and parameters around social impact and measuring its success. We look at each investment individually and refer to our standard document which every manager of every cause must complete. It specifies their goals, outcomes, outputs, timelines and methods on how they intend to get there. It details the financial and human resources required and sets out how long each engagement will take. This helps us value an opportunity and then create metrics relevant to each unique investment which could mean a reduction in the number of rhinos poached, an increase in employees within local management organisations or the construction of a fence around a certain area. Each investment is valued and judged on a case-by-case basis.
INCENTIVISING TALENT WITHOUT A RETURN
Some may find it difficult to attract talent to work for their Family Foundation as it is undeniable that the rewards are seldom as high as within a Family Office structure. We find however that there is so much talent interested in doing good and working in a progressive environment that with a decent financial package people are very keen on working with us, not the least young people. To be able to participate in efforts to create social and environmental impact is a more important incentive to them than merely financial reward but of course both must exist to a degree.
At Jamma we like to say, we think the way we do.
This means we do not support projects just to generate a twice-yearly report. We work and live with our projects, taking an active part in their development. This is something that attracts the competent people.
On the Impact Investment side, in addition to specialised analysts we also look for passionate people who are experienced within the geographical areas where we aim to make impact. For instance, today, we work with a consultant who is both experienced in business, has a history of their own Impact Investing and originates from Southern African. This person understands fully the impact we are striving to make in a familiar region, has the right mentality, local expertise, cultural insights plus a good understanding of local rules and regulations. To us this has more value than any investment experience alone could ever hold.
ADVICE TO OTHERS
I think Family Offices must first understand what they want to achieve, both in terms of financial return and wider impact.
It is often not enough with passion and a wish to do good. Enough time must be taken to both understand the causes you wish to support and the journey needed to take to get there. Family offices are very commercially oriented while the philanthropic world is not. This can cause a lot of tension and frustration. Be aware of this so it does not come as a complete surprise as it can be very destructive for your operations.
Another thing that is vital is to think about is how you structure your resources. As I mentioned earlier, you should avoid putting all earmarked funds for Philanthropy into your foundation as it is both regulated and ringfenced in there.
In the same way, you should give some thought to where you register your Impact Investments: in the foundation or within your family structure? A charity gives away money. Not that many questions are asked if the giving is in line with the objectives of the foundation. It is almost taken for granted that there is value for money. However, when it comes to Impact Investment you need to be crystal clear on the purpose, aims and objectives of the investment. This is something our auditors point out repeatedly.
Accordingly, as a matter of good governance and to avoid unnecessary scrutiny we have chosen to allocate some of our investments made to make impact to the Family Office side of the business and it is something you too might want to consider in order to implement your philanthropic ambitions in the most flexible and efficient way.