Philanthropy continues to evolve, offering families more options than ever before to put their money to good use. In this week’s issue, Marcus Baram compares and contrasts trust-based philanthropy and strategic philanthropy, highlighting the pros and cons of each approach.
We’re also excited to introduce the debut of our new video series, Wealth & Wisdom. I had the pleasure of sitting down with real estate investor Don Peebles of the Peebles Corp. for a wide-ranging conversation on topics like family legacy, succession and the role of mentorship for the next generation.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: Why families are embracing trust-based philanthropy
By MARCUS BARAM
With the rise in charitable giving by family offices amid the rush of money from the great wealth transfer, donors are adopting different approaches to philanthropy. In recent years, trust-based philanthropy has increasingly competed with strategic philanthropy in appealing to family offices and wealthy individuals — and they represent contrasting outlooks.
In the next two decades, baby boomers and older generations are expected to pass down a combined $84.4 trillion in assets to younger generations — and that has prompted an increase in charitable giving.
In recent decades, strategic philanthropy has dominated the field, representing a data- and results-driven approach that emphasizes outcomes. It represented a sharp break from traditional giving, which typically involved the wealthy writing a large check to a familiar charity and expecting an invitation to an annual dinner gala.
The strategic approach, which remains popular with many tech billionaires, brought rigor and focus to charity. But it was donor-focused, often prioritizing their needs and goals over those of the nonprofit. That created a power imbalance and reinforced systemic inequities.
Those criticisms have led to a shift by some donors to an approached dubbed trust-based philanthropy, which is focused on building more equitable and collaborative partnerships between funders and grantees.
“It’s about seeking to understand the needs of nonprofits and respond to them,” said Joseph Brooks, managing director at Arabella Advisers, a Washington-based philanthropy consulting firm.
Trust-based philanthropy typically involves unrestricted multiyear donations — reducing the burden on charities by eliminating the need for regular reports — and is grounded in trust and strong relationships.
'Discuss what's working and not working'
“In general, it’s about donors listening to and engaging with grantees so that they can openly discuss what’s working and not working and to find out what else they need to be successful,” said Michael Moody, a professor of philanthropic studies at the Lilly Family School of Philanthropy at Indiana University. He contrasts it with the “spray, pray and walk away” hands-off approach of traditional philanthropy.
“We talk about it now," Moody said. "Those conversations are happening much more now in the field than they were 10 years ago.”
Danielle Louton, an investment adviser at San Francisco-based Summit Trail Advisors, said she saw trust-based philanthropy among her clients really take off during the pandemic. “During COVID, there was just so much need for things like food and shelter," she said, "and we all kind of just dropped everything to get money in the hands of those who need it. Let’s help, help, help.”
Except for the pandemic, Louton said, such donors still want to know that their gifts are being used wisely and often perform due diligence before cutting a check. “But they don’t necessarily need to have outcomes and measurements,” she said. Instead, it’s a more collaborative relationship and often involves unrestricted gifts to organizations that donors have given to before and where they serve as board members or volunteers.
Some point to Mackenzie Scott, who has given an average of $3.3 billion a year since 2019 to hundreds of organizations, as an exemplar of the model. “What’s very trust-based about it is that she requires very little if any information ahead of time,” Moody said. “And she provides huge amounts of money with very few strings attached.”
Scott’s approach is rare, Louton said, noting that clients don’t just toss money blindly. “I'm not seeing a lot of clients now that are writing a million-dollar check just unfettered, as in ‘Go for it, whatever you want to do.’ ’’
Some of Louton's family office clients are weighing how to assess the impact of their giving without requiring burdensome tactics like measurement-based reports. “Are you building a relationship with that organization?" she said. "Are you building trust within it and getting to know how it works so you don’t need to rely on a 100-page annual report?”
Besides multiyear funding, trust-based donors often give general operating support. “That’s an investment in allowing the organization and its people to make the choices and do the work they need to do with the least amount of barriers, with the least amount of friction and hoops to jump through,” said Lesley Slavitt, executive director of the Grand Rapids, Michigan-based Dorothy A. Johnson Center for Philanthropy at Grand Valley State University.
Big benefits for smaller groups
Moody suggests that trust-based philanthropy often results in more funding being directed toward smaller, community-based organizations. He references author Malcolm Gladwell’s critique of donating $100 million to Harvard University, pointing out that many other deserving colleges could benefit from such financial support.
“If you engage in trust-based philanthropy, you’re going to be talking to a wider range of nonprofits,” Moody said. “And as you engage, you realize that some smaller or startup organizations might actually be worthy of my trust. There are other indicators of trust that can come out like good ideas or valuable community connections.”
In some ways, the term is just a new label for an approach that has been around for many years among some donors. Moody recalls interviewing a wealthy Mexican family who focuses its charitable work in a particular region of the country and has a family manual to guide its giving.
“When we were talking to them, we said, ‘So you guys are practicing trust-based philanthropy.’ And they said: ‘We’ve never heard of that. We’ve been doing it for years.’ ”
Wealth & Wisdom: Don Peebles talks family legacy
In the debut of the Wealth & Wisdom video series, Editor Kristen Oliveri sits down with Don Peebles, the chairman and CEO of the Peebles Corp., to discuss family legacy, working with his children and his views on mentorship in today’s ever-changing societal landscape. Peebles speaks candidly about his son Donahue, who is forging his own path with projects on affordable housing, and how he helps guide his son while giving him the freedom to make his own choices.
LOOSE CHANGE
Murdoch fight challenges Lachlan’s leadership: The succession battle playing out in a Nevada courtroom this month between Rupert Murdoch’s four oldest children could ultimately decide who controls Fox News and The Wall Street Journal.
Sports agent curates Sotheby’s collection: Rich Paul, the agent for LeBron James and other star athletes, has partnered with Sotheby’s to create a collection of contemporary art that will be auctioned Sept. 27.
Cresset hires new chief compliance officer: Amy Hong, a former private wealth executive at JPMorgan Chase & Co., succeeds the recently retired Bob Pagliuco.
Help us with a story: We’re working on a story about handling the scrutiny of anonymous donors. If you have any comments on the topic, reach out to [email protected].