The Catalytic Power of
Philanthropic Capital

Philanthropy is undergoing a revolution as wealthy donors seek to measure the impact of their efforts to help the world.

There was a time when wealthy families were happy to attach their names to concert halls and museums, but those days are long gone. Today’s wealth creators want to solve the world’s most pressing human and environmental problems, and they want to do so in their lifetimes.

A UBS survey¹ of billionaire clients confirms this ambition: 95% of respondents believe they should use their wealth to help tackle global challenges and more than two-thirds see it as their duty to “lead the way.”

Today’s philanthropists are hands-on². They are intent on using their capital and problem-solving skills to find the most effective and efficient solutions to global challenges. They prefer a bottom-up approach, working with communities on solutions that work for them, and increasingly, philanthropists are adding climate considerations to their initiatives.

“There’s a shift that happens in the minds of philanthropists when they go from giving their money away and hoping it does good, to becoming a social investor,” explains Sarah Salomon, Head of Family Advisory and Philanthropy Services Americas at UBS. “It’s an aha! moment. The difference is that there is an expectation of results and that achieving your goals will inspire others.”

The ultimate goal of the new philanthropy, says Tom Hall, Global Head of Social Impact and Philanthropy at UBS, is to be a catalyst for broader, systemic change. To make a deeper impact on a bigger scale, philanthropists and their on-the-ground partners are working collectively to find new, creative and ambitious solutions for hard-to-crack problems—whether transforming educational opportunities for millions of children, reversing deforestation or providing essential healthcare to isolated communities.

The power of the collective

These challenges are changing the operating model of philanthropy in three important ways.

First, philanthropists are beginning to collaborate and pool resources to maximize impact. In 2021, the UBS Optimus Foundation launched three UBS Collectives³ for clients who wished to combine their expertise, interests and capital to address issues such as child protection, climate change, and health and education. The funds are going into innovative pilot programs which, if successful, can be rapidly scaled-up in pursuit of systemic change.

“We strongly believe that philanthropists can make the greatest difference if they connect with others,” says Mr. Hall.

Second, these pooled funds are being leveraged for even greater impact, by partnering with investors. Student financing for example is a critical area to help meet the United Nations Sustainable Development Goal 4, yet the open-market cost of capital for young women in Rwanda or the Philippines can be as high as 40% annual percentage rate. The Future of Work Fund⁴ is a groundbreaking blended finance vehicle^* that combines risk-tolerant, concessionary, flexible investment—known as catalytic capital—with impact debt and stakeholder investments to provide affordable finance for students entering higher education in sub-Saharan Africa. In this instance, $10 million of philanthropic capital provided by philanthropists—including UBS clients in partnership with the UBS Optimus Foundation—allowed the fund to borrow a further $12 million at a much lower rate, giving the fund a pool of $22 million to provide student financing at a much lower rate. The goal is to help around 10,000 students in 2023 and expand student-loan services in Rwanda, Kenya and South Africa thereafter. In 10 years the whole fund will target a 9% internal rate of return meaning the philanthropic capital can hopefully be recycled many times over.

Third, philanthropists are also investing for maximum impact, providing the patient capital required to incubate and scale-up promising ventures.

Multiplying impact

The London School of Economics (LSE) uses the phrase “social impact unicorns” to describe enterprises that have the potential to transform the lives of billions. To nurture more of these, the UBS Optimus Foundation has partnered with the LSE to launch the 100x Impact Accelerator⁵, a £50 million global initiative that will provide capital, mentoring and other kinds of support to enable impact-driven organizations to think bigger and achieve more.

“We’re going to take the best five and invest catalytic capital to scale them up,” says Mr. Hall.

One initiative that has the potential to achieve social unicorn status is Kenya-based Jacaranda Health⁶, which works to improve the health of expectant mothers and newborns—especially those living in remote locations. To ensure mothers and babies get the right care at the right time and place, Jacaranda Health operates a digital health platform, accessed via mobile phones, that connects mothers with lifesaving advice and referral to care.

“When Covid hit, the UBS Optimus Foundation saw an opportunity to leverage Jacaranda’s digital platforms to help address widespread and urgent gaps in maternal and infant healthcare by expanding our support to government hospitals,” says Nick Pearson, founder and co-executive director of Jacaranda Health. “UBS helped build our capacity and accelerate our reach from 100,000 women to over 1 million, helping mothers safely navigate pregnancy.”

Over the next three years, Jacaranda’s goal is to make its programs available to all mothers in Kenya and demonstrate that these can be replicated in other countries. “By 2025, we plan to be in at least four countries, reach over 5 million women, measurably reduce maternal and newborn mortality, and have a successful blueprint for supporting governments,” Mr. Pearson says.

Sources

* Your capital is at risk. The value of an investment may fall as well as rise and you may not get back the original amount.

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Using Wealth for Impact

The Catalytic Power of Philanthropic Capital

The Catalytic Power of
Philanthropic Capital