Philanthropy: expanding the reach for the private banks
Tonika Hirdman, Director General of the Fondation de Luxembourg shares her views on why philanthropy is key to the Luxembourg financial centre.
Globalisation has brought us a huge increase in welfare in practically all regions of the world. More and more people enjoy being part of democratic societal systems. Nonetheless, numerous people still live in great distress and poverty. Many are struck by armed conflict, fatal deceases and extreme weather conditions. Social problems, like social exclusion and youth unemployment remain unsolved even in developed countries.
How do we find solutions to all these challenges? Governments do not have all the answers and in these times of economic crises, public welfare budgets are even shrinking. At the same time, during the last ten years, we have seen an unprecedented private wealth creation with the number of billionaires reaching beyond one million, representing more than 46 trillion USD.
This is where, in my view, philanthropy can play a role. In spite of the crisis or perhaps as a consequence of the crisis, the interest in philanthropy has developed considerably during the last years, and is entering a new era. Aware of the existing social issues, a new generation of younger, more committed philanthropists is emerging. They are driven by the desire to apply their own knowledge and wealth by helping to improve the societies in which we live. Many of today’s philanthropists are world citizens with engagements in several jurisdictions. Luxembourg’s geographical location in the centre of Europe and its concentration of experts in cross-border legal, fiscal and financial matters are solid reasons for international philanthropists to choose to establish their foundations in the Grand Duchy.
For Luxembourg, philanthropy contributes to innovation and diversification of the international financial market place by attracting wealthy cross border investors. It is a fact that the Luxembourg private banking sector is in a reorientation phase and needs to attract a new type of sophisticated clients who can replace the shrinking traditional client base. This requires new thinking, new services and new competences. Philanthropy, microfinance and impact investing are all new niches which attract the wealthy of today, who are looking for ways to give something back to society. However, giving in an efficient way can be quite complex and the problem is that most donors do not know whom to turn to for advice. In my opinion, private banks are uniquely positioned in terms of helping philanthropists to navigate the most efficient solutions, but to date they have merely scratched the surface. By proactively bringing up the topic of philanthropy in client discussions and by assisting them in setting up their foundations in Luxembourg, they will not only acquire new clients and new capital, but will also build trust and deepen the relationships with existing clients. I am questioning whether all private banks have actually grasped the full potential that philanthropy can bring. For example, the Italian founder of the Fondation Verso, chose Luxembourg for the establishment of her foundation after evaluating several financial centers. In order to use the revenues of her capital to the benefit of an education project in Burkina Faso, she transferred the investment management of her fortune to a private bank in Luxembourg.
In my regular encounters with wealthy foreigners, I perceive at what level philanthropy contributes to the international image of Luxembourg. Luxembourg is already one of the most generous countries of the world when it comes to its public engagement. By actively promoting philanthropy, the Luxembourg financial market will assist in helping to transform a part of the private wealth created, to finding solutions to today`s global challenges.