With philanthropy ever higher on the personal agendas of many successful private equity professionals, ideas are proliferating as to how the industry can mobilise the most capital and add the most value to charitable causes around the world.
One groundbreaking model has been advanced by the partners at Investindustrial, a mid-market firm investing primarily in Italy and Spain. It's called “The 1% Club” and requires private equity funds, as members of the club, to donate 1 percent of their capital gains to charities and foundations either directly or via a charitable fund of funds structure.
If the concept catches on, the takings could be huge. Carlo Bonomi, Madrid-based partner at Investindustrial and one of the brains behind the initiative, says Europe's private equity industry has invested an average of €33 billion per annum in the past five years. Assuming a yearly return of two times, i.e. €33 billion, a 1 percent philanthropy provision would generate a massive €330 million for nonprofit investment per year.
If you then recognise, as Bonomi does, that institutional investors such as pension funds, insurance companies and banks will hardly be able to accept such terms, you need to recalculate the figure based on the 28 percent share of European private equity capital that has been raised from private individuals, corporations and other non-institutional groups. 28 percent of €330 million is approximately €92 million – still a very, very large number indeed.
Says Bonomi: “As an industry, we've done extremely well to get to where we are, both through hard work and luck. As professionals, we are the first generation who can really make a change, and I believe we have a duty to take this opportunity seriously.”
Bonomi also argues that a related benefit to private equity would be an improvement to its public image: “Most industries have programmes that reflect their care for all stakeholders. There is no reason why an ambitious community such as ours shouldn't have the same.”
He and his partners at Investindustrial have put their money where their mouths are and amended the firm's articles of associations to reflect the fact that it is a fully signed-up member of The 1% Club. Proceeds are used to fund “Invest for children”, a foundation created by Investindustrial to support disabled children.
The 1% Club will soon be looking for new members and for the time will be concentrating its efforts on private equity firms in Italy, Spain and the UK. If the project gathers sufficient pace, according to Bonomi, the next step will be to recruit professional staff to manage the club's resources. “Many of us are engaged in charity,” he says. “What needs to happen once the concept is accepted is that we institutionalise the work we do. Given private equity's financial potential, it could be very significant, and whilst this project is a marathon and not a sprint, we think by just getting the ball rolling it will have a huge impact on our industry and of course on the charities that will receive such donations.”
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