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"To build a sustainable charitable foundation is similar to running a successful family office."

Adrian Fu, Chairman of Fu Tak Iam Foundation

 

Although it has been nearly 60 years but the following experience stuck firmly in my mind. At the time when I was a 9 year old growing up in Kowloon, we once came upon a woman with a child coming to the street we lived to beg for money. After a while the neighbourhood drivers and street vendors became curious and struck up a conversation with them. They explained that they were mother and son, refugees who fled communist China and begging was the only way to survive. Someone then suggested to the boy (who was about 12) that he should try supporting the family by shining shoes. Mother and son were receptive to the suggestion but it would involve an investment of $30 to buy the equipment. A neighbourhood fund raising exercise soon ensued. All the working class locals were chipping in with a few dollars each. That night I went home and broke my piggy bank and came up with $10. I would never forget the gratitude in the boy’s eyes when the collection was handed over to them. About a week later mother and son returned to see us with a brand new shoe-shining box and proudly reported that the first paying customer had been secured. I suppose that was my initiation with impact investing!

Since inception 5 years ago, our Foundation has funded 99 projects for different causes, time horizon and size. Almost without exception these are investments aimed to produce results over a short, medium or long term. The NGOs we normally support have very well defined objectives and their progress is monitored very closely to ensure that the intended results are attained. It is also important to us that the interests of both grantor and grantee are aligned, a fundamental principle for a successful relationship. Like all prudent investors we are bottom line conscious. A NGO that does not have good control over costs is not likely to pass on the benefits to the ultimate recipients. We, of course, have learnt from past mistakes by backing the wrong organisation. But with our tight monitoring system mistakes hopefully can be rectified before further losses are incurred.

Daunted by our disciplined approach some smaller NGOs which are weak in administrative ability are often deterred. After all, it is understandable that social workers who run NGOs are not trained accountants and bookkeeping is not their second nature. To this end we have embarked on another project which is to build an administrative platform that can be shared by small NGOs. Thanks to the development of information technology this has become achievable. Once this is in full operation we hope the door will be open to many of those with a passion to help others.

To build a sustainable charitable foundation is similar to running a successful family office. It begins with an endowment, followed by an investment plan to produce a recurrent income and to generate capital growth. It is our policy to apply all the income to fund philanthropic causes. In recent years we have witnessed very high volatility among some of the biggest endowment funds in our universe. One particular asset class commonly known as alternative investments, a financial product which was heavily marketed by intermediaries has suffered the most. Alternative investments are so categorised because they do not fall within the traditional asset classes which normally include bonds, equities and real estate. Typically hedge funds and private equity are defined as alternatives. Hedge funds are supposedly market neutral so in theory less volatile in a turbulent market. As it turned out, universal quantity easing by major governments has totally flushed this investment strategy down the drain. Private equity is a very cyclical business and offers little or no liquidity. Typically investors’ funds are locked up over an average of 10 years and likely to last over 2 investment cycles. When the cycle peaks fund managers generally vie for overvalued businesses which inevitably would result in losses on exit.

When endowment funds perform poorly NGOs suffer. Over the past years we have witnessed a marked shrinkage of the funding pool. Thankfully there is a new awareness worldwide relating to philanthropy which helps to generate additional funding to fill the void. The key elements to keep a perpetual charitable fund on course are periodic injection of fresh capital, a disciplined investment strategy, and a focused granting policy. It remains our long term strategy to stay financially healthy so that current and future grantees are able to reap the benefits.
 

 

Adrian Fu, Chairman of Fu Tak Iam Foundation

 

Although it has been nearly 60 years but the following experience stuck firmly in my mind. At the time when I was a 9 year old growing up in Kowloon, we once came upon a woman with a child coming to the street we lived to beg for money. After a while the neighbourhood drivers and street vendors became curious and struck up a conversation with them. They explained that they were mother and son, refugees who fled communist China and begging was the only way to survive. Someone then suggested to the boy (who was about 12) that he should try supporting the family by shining shoes. Mother and son were receptive to the suggestion but it would involve an investment of $30 to buy the equipment. A neighbourhood fund raising exercise soon ensued. All the working class locals were chipping in with a few dollars each. That night I went home and broke my piggy bank and came up with $10. I would never forget the gratitude in the boy’s eyes when the collection was handed over to them. About a week later mother and son returned to see us with a brand new shoe-shining box and proudly reported that the first paying customer had been secured. I suppose that was my initiation with impact investing!

Since inception 5 years ago, our Foundation has funded 99 projects for different causes, time horizon and size. Almost without exception these are investments aimed to produce results over a short, medium or long term. The NGOs we normally support have very well defined objectives and their progress is monitored very closely to ensure that the intended results are attained. It is also important to us that the interests of both grantor and grantee are aligned, a fundamental principle for a successful relationship. Like all prudent investors we are bottom line conscious. A NGO that does not have good control over costs is not likely to pass on the benefits to the ultimate recipients. We, of course, have learnt from past mistakes by backing the wrong organisation. But with our tight monitoring system mistakes hopefully can be rectified before further losses are incurred. 

Daunted by our disciplined approach some smaller NGOs which are weak in administrative ability are often deterred. After all, it is understandable that social workers who run NGOs are not trained accountants and bookkeeping is not their second nature. To this end we have embarked on another project which is to build an administrative platform that can be shared by small NGOs. Thanks to the development of information technology this has become achievable. Once this is in full operation we hope the door will be open to many of those with a passion to help others.

To build a sustainable charitable foundation is similar to running a successful family office. It begins with an endowment, followed by an investment plan to produce a recurrent income and to generate capital growth. It is our policy to apply all the income to fund philanthropic causes. In recent years we have witnessed very high volatility among some of the biggest endowment funds in our universe. One particular asset class commonly known as alternative investments, a financial product which was heavily marketed by intermediaries has suffered the most. Alternative investments are so categorised because they do not fall within the traditional asset classes which normally include bonds, equities and real estate. Typically hedge funds and private equity are defined as alternatives. Hedge funds are supposedly market neutral so in theory less volatile in a turbulent market. As it turned out, universal quantity easing by major governments has totally flushed this investment strategy down the drain. Private equity is a very cyclical business and offers little or no liquidity. Typically investors’ funds are locked up over an average of 10 years and likely to last over 2 investment cycles. When the cycle peaks fund managers generally vie for overvalued businesses which inevitably would result in losses on exit.

When endowment funds perform poorly NGOs suffer. Over the past years we have witnessed a marked shrinkage of the funding pool. Thankfully there is a new awareness worldwide relating to philanthropy which helps to generate additional funding to fill the void. The key elements to keep a perpetual charitable fund on course are periodic injection of fresh capital, a disciplined investment strategy, and a focused granting policy. It remains our long term strategy to stay financially healthy so that current and future grantees are able to reap the benefits.