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!- www.princetoninfo.com/200403/40317c01.html Princeton, business
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This article by Kathleen McGinn Spring was prepared for the March
17, 2004 issue of U.S. 1 Newspaper. All rights reserved.
For the Rich, Giving is Also Different
Curt Bassett is in the business of separating the very wealthy from
their fortunes – but in the best possible way. Founder and CEO of
Princeton Social Capital, a philanthropic consulting and education
company just setting up offices on Alexander Road, he has some 20
years of experience in advising billionaires, as well as mere
multi-millionaires.
At first blush, giving away money would appear to be a snap, but doing
so well involves a plethora of legal and financial strategies, a fair
amount of thinking outside the box, and an ability to see into the
future. There is an increasing demand for these skills for three
reasons.
The first catalyst has to do with the long run of history. Many saw
the calendar flip on January 1, 2000, as a milestone, a time to
re-evaluate priorities. “There was a resurgence in social
consciousness,” says Bassett. “It has to do with religion – or
introspection – at a major turning point. There was the idea that
‘we’re going to be a new generation.’”
The second reason for the surge in foundation creation is more
concrete, and has its roots in the very recent past. “Incredible
wealth was created over the past 15 to 20 years,” says Bassett. The
engine was the stock market, and the biggest beneficiaries were
entrepreneurs. This new breed, made fabulously wealthy by chips, code,
and esoteric futures markets, are cut from the same jib as their
American forebears whose fortunes came from steel or rails.
“There is a conflict in those who created the wealth,” says Bassett.
“It’s a conflict of ideals. Americans believe in creating a better
life for their children, but they revere the self-made man or woman.”
That belief accounts for a good part of the third reason for a surge
in philanthropy. “Many wealthy people are reluctant to shower their
children with money,” Bassett finds. But they don’t want the
government to get it either. The third option: charitable giving. Most
often, this philanthropy is expressed through a foundation, and that
is where Bassett’s new company comes in. It offers everything from
classes in philanthropy to foundation set-up to advice on non-profit
mergers and acquisitions.
Bassett is the grandchild of Idaho potato farmers. His parents grew up
on farms, but left Idaho to settle in Houston, where his father worked
as a civil engineer. A Mormon, Bassett studied finance at Brigham
Young University (Class of 1981) before earning a law degree from the
University of Houston. He was drawn to finance, and especially to
financial estate planning, he says, because “it was a new and exciting
field.” Another reason is that he saw finance as “having a large
impact on society.”
He began to sense some of the arenas in which money could make a
difference in people’s lives as a teenager, when he went on a two-year
Mormon mission to Colombia. “I learned about poverty,” he says, “and
about social interest.” He also learned an unexpected lesson. “I
realized that money won’t buy happiness,” he says. “Many of those
people were happy. I saw that poverty wasn’t an ill in itself.”
Back home, with his education completed, he went to work for noted
philanthropy consultant Paul Comstock, whom he considers his mentor.
He then built investment expertise at Kidder Peabody before moving on
to Renaissance Inc., a charitable trust administration company in
Indianapolis.
In 1995 Bassett joined Merrill Lynch, where he started that company’s
Center for Philanthropy and Non-Profit Management. At Merrill, he was
also head of a group that worked with philanthropic families of great
wealth. “The minimum client base was $100 million,” he says. “I was
working mostly with billionaires.” When he left the company, he was
director of Foundations and Strategic Philanthropy.
Not long before he left Merrill to go out on his own, Bassett attended
a conference on strategic philanthropy at which he ran into Stan Katz,
a noted expert on the subject. Katz, now on the board of Princeton
Social Capital, is faculty chair at the Woodrow Wilson School and
director of its Center for Arts and Cultural Policy Studies. The two
hit it off immediately, and Katz helped Bassett develop the idea for
his new company, which he believes will “fill in the gaps” in services
offered by others who advise philanthropists.
“The biggest gap,” says Bassett, “is that philanthropy consultants
lack financial acumen. They can identify the best organizations, but
can’t evaluate financial sustainability. They lack the skill set.” He
believes that Princeton Social Capital’s strength lies in “putting
together Wall Street financial proficiency with non-profit
proficiency.”
Shortly after meeting with Katz, Bassett set out to raise funds for
his start-up. Tapping a wide network of contacts made over two
decades, he quickly raised the money, a sum he won’t disclose, and put
together a board, which includes Joe Long, one of Texas’ leading
philanthropists, John Townsend, former head of investment banking at
UBS and current head of New York City-based Altman Foundation, and
Asad Mahmood, social investor and head of Deutsche Bank Microcredit
Development Fund.
Princeton Social Capital is a for-profit company. It works with
individuals, community foundations, and corporate foundations. All of
its fees come from philanthropists, as opposed to the non-profits and
for-profits it identifies as especially effective in meeting the
philanthropists’ stated social goals.
Carpet freshly laid at his company’s first address, where a number of
offices have new furniture, but no occupants, Bassett is interviewing
candidates for about 10 positions. He has already hired a social
venture capital analyst, a foundation consultant and program
specialist, a head of policy and research, a two social research
analysts, and an education research analyst. Some tasks will be
outsourced, and in other cases the company will take on outsourced
work from other firms, perhaps from brokerages looking for training
services. It is the early days, and facets of the structure of the
company are still up in the air.
The goal of its work, however, is clear. Princeton Social Capital
exists to advise the very wealthy on how to make their money a
catalyst for good, or at least for advancing causes that matter to
them. In the past, that might have meant investing the money so that
good works could be perpetuated for decades, for centuries. That is
still sometimes the case, but not always.
Some philanthropists now want to give away all of the money they have
earmarked for charity within a short span of time. There are two
reasons for this. Look to the high profile legal wrangling over the
future of the Barnes foundation, the Philadelphia-area home of one of
the world’s greatest collection of art, for one. “The Barnes is a
great example of a foundation that tried to prevent deviation from the
founder’s intent,” comments Bassett.
Warring Barnes’ factions claim, on one side, that the founder would
never want the school and museum to leave its Main Line home, and on
the other, that it is doomed to financial ruin if it does not move
into the city of Philadelphia. This, says Bassett, is a classic
example of the conflict that can arise as a foundation ages. “You
don’t want renegades to take over,” he says, “but it’s hard to
anticipate changes in society.”
Put the money to work while you are alive, or direct that it be spent
soon after your death, and you have a greater chance that your wishes
will be carried out within a societal framework you understand.
That is the obvious reason for not aiming to set up a financial
structure that will dole out money in perpetuity. But there is another
reason. “There is a double bottom line,” says Bassett, “financial
capital, and social capital.” The latter is the good that compounds
and rolls forward, compounding still more as it does. For example,
money given away to educate teens in parenting skills could result in
hundreds of babies raised in loving, stable homes. Those babies,
growing into strong, caring adults, could do an even better job with
their children. Pass it along, and the money, while no longer growing,
could earn dividends in the form of thousands of promising children.
Philanthropists are appreciating the value of such social capital more
and more. But there does not have to be a either-or choice between
financial and social capital. Bassett talks about a philanthropist who
wanted to give money to a hospital. He worked with that individual on
a plan that would allow the hospital to do good, while at the same
time preserving the philanthropist’s capital for further giving.
It worked like this. The donor and the hospital worked out a plan
through which the hospital borrowed $1 million a year for 10 years,
and the donor paid the interest. The interest rate on the hospital
loan was so much lower than the return the philanthropist was able to
get on his money that, after 10 years, he was able to pay off the $10
million loan from investment returns alone, preserving the capital for
further giving.
This is thinking outside the box, and Bassett stretches the box
further still when he suggests that there are circumstances when a
philanthropist can do the most good by not giving his money to a
charity, but rather by giving it to a for-profit company.
“There was a billionaire out of Los Angeles,” he recounts. “He felt he
had found a cure for melanoma.” He had identified a Nobel prize winner
who wanted to put $30 million into trials for a vaccine. The
scientist’s company was aiming to cure an especially vicious cancer –
and also to make money. That, says Bassett, is an example of a “double
bottom line.” Both social and financial, the strategy can be the best
way to achieve a good outcome. “It can be easier to raise money from
investor than from donors,” he says of one plus of this form of
philanthropy. The giver might not be able to get the biotech going on
his own, but his investment might give it the start it needs to
attract more investors.
As one of its services, Princeton Social Capital will help identify
such for-profit philanthropic opportunities along with non-profit
opportunities.
Are there any hot trends in philanthropy? One very popular trend, says
Bassett, is the granting of micro-loans, through which individuals,
often living in Third World countries, are given enough seed capital
to start a small business. Asked for one more popular new philanthropy
recipient, he points to charter schools. One of his own favorite
non-profits is the Princeton Charter School, where his daughter,
Elise, is a seventh grader.
These are just two of thousands of possibilities for grantmaking.
Before helping philanthropists to evaluate and chose among them, the
new company aids them in developing a vision. Most philanthropists
Bassett has worked with – a group that ranges from age 30 up and that
consists largely of entrepreneurs – come to him with some idea of what
they want to do, but no specific plan. After shaping the vision, his
company helps with developing foundation legal structures, governance
strategies, a financial plan, a social investing strategy, a strategic
grantmaking strategy, and administrative set-up.
Princeton Social Capital will even provide advice on non-profit
mergers and acquisitions. There are any number of niches where
non-profits are competing for the same dollars to accomplish the same
goal. A philanthropist with an interest in furthering that goal might
be able to do more good if the organizations to which he was donating
joined forces. Where that is the case, Bassett’s organization could
offer help with the delicate task of urging the non-profits to give up
some autonomy, meld boards, staff, and volunteers and move forward
together.
Similarly, an arm of a non-profit might appeal mightily to a donor who
is not particularly interested in the other functions of the
organization. In that case, a spin-off might be in order. Bassett
emphasizes that in either case his company would be working for the
philanthropist and would collect its fees from him, and not from the
non-profits.
A central service that Princeton Social Capital performs is
encouraging, and forming, family involvement, an area of philanthropy
has undergone a tremendous change.
“There was an article in Fortune in 1997,” says Bassett. “It was
called ‘The Disinheritors.’” The article profiled profoundly,
heretofore unimaginably, wealthy corporate executives, including Bill
Gates and Warren Buffet. “They were very public about the fact that
they wanted to give a majority of their money to foundations,” he
says. “They intended to give their children enough to have seed
capital to regenerate, but not enough to live off the wealth and never
have to work.”
Others are following the lead. A good number of Bassett’s clients have
told him of twin fears: They don’t want their children to wreck their
wealth, and they don’t want their wealth to wreck their children. “The
challenge of wealth creators,” he says, “is to transfer the values
that were critical to creating the wealth.” Given too much money,
however, hard work tends to fall by the wayside. But not right away.
While it is axiomatic that the third generation becomes a bunch of
wastrels, Bassett says it takes longer. “In my experience,” he says,
“it’s the fourth or fifth generation that destroys the wealth.” What
happens is this. Around about the third generation, the adults decide
to use the family wealth as lifestyle capital. They spend, but they
don’t work. “Their kids see a disconnect between effort and reward,”
he says. “Then it’s squandered and fought over.”
Without a family-wide focus on doing good, perhaps by creating useful
products or by helping to advance a cause, “wealth is all about us,
rather than about the other,” says Bassett. “When the focus is inward,
it creates narcissism.”
Meanwhile, Bassett himself appears to be in no danger of falling into
a life of indolence. “Our plan is to be national,” he says. “And we
will move quickly. We will open offices in San Francisco, Houston, and
Chicago within a couple of years.”
If the effort is successful, Bassett will be in a position to worry
about the effect of substantial wealth on his child. “I’m already
teaching Elise about money,” he says.
Princeton Social Capital Inc., 821 Alexander Road, Suite
115, Princeton 08540. Curt Bassett, CEO. 609-275-6677.
Www.princetonsocialcapital.com
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