How to Spread It: Richard Bottger and James Faircliff

2013-09-30 08:00

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Tower Capital Management, a South African hedge fund’s management company, might seem like an odd choice for a philanthropy feature, but two fund managers – Richard Bottger and James Faircliff – have come up with a novel way of making nonprofit philanthropic ventures more sustainable.

Bottger and Faircliff have designated a special share class for philanthropic investments so that investor capital can be invested in their hedge fund, achieving capital growth over time, while a portion of the fees earned by Tower Capital on these designated investments each month is passed back directly to the nominated charity.

The idea is that the larger the capital base becomes, the more the charity benefits and becomes able to fund a larger and larger portion of their expenses, becoming less and less reliant on donations.

Investors in the philanthropy class can be either wealthy individuals or family trusts that are prepared to allocate a portion of their wealth to “doing good”. Or the investor can be the charity, investing its own capital balances for growth, while getting a portion of the fees back as cash flow.

Tower Capital already has its first investor, a family that runs its own foundation for the education of children. This model has enabled the foundation to receive monthly cash flow while the allocated capital continues to grow. The end game is that the foundation can become self-sustaining as more investors are attracted to the venture.

How does it work?

It is all about creating a sustainable model that works over time for the benefit of the nominated charities. If a portion of the fees donated by Tower Capital can cover the amount needed to run the charity for a year, the charity can then become self-sustaining. We are building an ecosystem – the charity, the fund, the fund manager and the investors – that will be symbiotic.

This is a model of giving that isn’t entirely altruistic, but is philanthropic nevertheless. Would you agree?

Giving has become de rigueur for wealthy individuals and trusts, but everything in life is about answering the question of how we can give more and get more at the same time. Our funding offering is about doing good while being good.

We see it as philanthropy that also makes investment sense – a win-win.

Why does this approach to philanthropy appeal to you?

There are a large number of charities and foundations in South Africa that do amazing work at grass-roots level to enhance lives and increase expectations for South Africans who are struggling with poverty and other issues.

And there are a significant number of privileged, wealthy South Africans who want to be able to help, but want to do so in a manner that makes long-term financial sense.

Tower Capital is already involved in a UK fund-of-funds venture in which the managers or advisers waive fees, which are then paid out to cancer-related charities and research, and we felt that we could replicate that ethos in the South African context.

We felt this was a good way to use our time, skill and energy to do something good, building on the remarkable achievements of other hedge fund managers globally who have tried to turn the image of hedge funds on its head and be very active in ‘giving back’.

Philanthropy is a core aspect of the culture at Tower Capital, and we want to be able to provide novel funding solutions like this that will help our investors as well as the charities they support.

This product is the definition of social entrepreneurship?

Yes, it uses entrepreneurial flair to do something novel that makes use of our skills for everyone to do good. It is a way of investing and, at the same time, of putting money into something meaningful and salient for the future of all South Africans.

For us too it is a building block on the way to building a better society for everyone.

Yours isn’t the only fund of this kind. Do you think this shows that even the broader investing public would be more receptive to investing in ways that enhance their contribution to society?

All South Africans appreciate the need to come up with novel funding models that allow the investing public to manage their philanthropic activities in a way that makes both financial sense, but also meets their specific giving objectives.

Certainly there are very exciting developments, and financial advisers are providing excellent platforms for philanthropic investing across the spectrum of opportunities.

We believe our philanthropic-funding model fits well within the scope of these initiatives.

While the hedge fund is not available for retail investors at this point, we do expect that down the line there will be retail products available for the broader investing public that will be based on this type of funding model. The message is simple: it is possible to ‘do good’ while ‘being good’.

»?This series is developed in partnership with the Southern Africa Trust

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