How to save the world (and some taxes too!)

May 01, 2020

Investing with impact through family foundations and the multiplication effect

We are living in unprecedented times: millions working from home, social isolation and physical distancing measures and the uncertainty of battling a new global disease. While your investment portfolio has likely taken a hit in the last few weeks, many clients are looking at ways they can contribute to solving the COVID-19 crisis. So how can you use your personal wealth in order to maximize your contribution?

One of the growing areas of philanthropy we’re seeing today is the use of family foundations. For example, Tobi Lutke, CEO of Ottawa-based Shopify and his wife, Fiona McKean, are redirecting the philanthropic efforts of their family’s Thistledown Foundation to fund different areas of research for fighting COVID-19. Contributing a portion of your investment portfolio to a family foundation would let your family get involved in this global cause, and teach younger family members the value of giving back. As an added bonus, you could also benefit from a significant tax-saving opportunity.

Establishing a family foundation may be the easy part. Once it’s up and running, you’ll have to determine which charitable initiatives to invest in. Surprisingly, there are some similarities between charitable giving and investing in a for-profit company. For example, both entities use the capital you provide to:

• Invest in physical assets (e.g., buildings, office equipment, machinery)
• Develop or acquire internally and/or externally created intellectual property
• Hire employees and managers to achieve their mandates

Your family foundation’s investment portfolio can serve as an asset that will be used to generate social benefit returns such as developing new vaccines, personal protection equipment and training the next generation of healthcare professionals. As you’re deciding which charity your family foundation should give to, consider the following three types of capital to invest in.

Financial capital

By taking a conscientious approach to investing, you can have an affect on new and existing companies that produce the goods and services needed to fight COVID-19.

Intellectual capital

As we have seen over the last several weeks, post-secondary institutions, public health and for-profit companies have been working to retool and develop technologies, processes and other forms of intellectual property to protect us and stop the spread of COVID-19.

Human capital

While new vaccines and technologies will help us to manage this pandemic, our world will continue to need educated and experienced employees and volunteers to create and implement these solutions.
Each of these forms of capital is mutually supported by the other two. So when you strategically invest in all three, you multiply the impact of your charitable giving. I refer to this as the Multiplication Effect (industry X research X people).

Here’s an example of the Multiplication Effect in action:

Mark, Pryia and their children have been working and studying at home since March. During this time together, they have also been discussing how they can use their family’s wealth to contribute to the fight against COVID-19 and prevent future pandemics. These discussions have motivated them to establish a family foundation that uses the Multiplication Effect to maximize the impact of their charitable giving. Here’s what it will look like.

Financial capital – Mark and Pryia have two financial objectives:

1) To have the investments held by their family foundation generate enough income to grow in the future, even after making its annual charitable distributions
2) To invest in public and private companies developing the products and technologies to fight pandemics

To involve their family in this aspect of the family foundation’s activities, they will bring their children to an AGM of one of their investee companies each year. This will allow them to learn firsthand how these companies operate and produce their goods and services.

Intellectual capital – Mark and Pryia met while attending the same university. Their alma mater’s medical department currently has several leading researchers in the field of virology. To support this important research, their family foundation will make an annual donation to the department. As part of their own Multiplication Effect, the university will be looking for opportunities to combine Mark and Pryia’s charitable donations with government and corporate giving programs to increase the amount of funding the department and its research receives. To involve their family in this aspect of the family foundation’s activities, they will organize an annual trip to their alma mater to meet the researchers and their teams, and receive a progress report on their work.

Human capital – Mark and Pryia will set up the following multi-generational strategy to develop the human capital needed to support their cause:

• Public schools – an annual donation to their local school board’s summer science camp
• Secondary schools – funding annual, paid summer internships for high school students at a local health unit
• Post-secondary institutions – the establishment of annual bursaries at their local community college to support its nursing and medical laboratory technologist programs (the family will award each year’s recipients at a lunch so they can see first hand how their contribution impacts the lives of these students)

As you can see from Mark and Pryia’s story, there are multiple ways to give using a family foundation. By strategically investing in financial, intellectual and human capital, you can use the Multiplication Effect to magnify the impact of your family’s charitable giving. So when you’re ready, talk to a Family Office Services advisor about how you can give more to your personal – and global – family through a foundation that’s right for you.

Jason Kinnear, Manager, Family Office Services
T.E. Wealth (iAIC), Toronto