Portfolio

An Embarrassment of Riches

August 23, 2010

It’s like the crisis never happened. The fortunes of the world’s wealthy have largely returned to pre-financial crisis levels. According to a study by Merrill Lynch and Capgemini, there are now 10 million households worldwide that can be classified as high net worth (meaning they have investable assets of $1 million or more). There has been a 17 percent increase in the number of millionaires, and their fortunes are up 19 percent in 2009. Yet the amount that the rich are giving to charities has not bounced back.

American philanthropies received more than $300 billion last year in charitable donations, according to industry group the Giving USA Foundation. That sounds like a lot—until you consider that donations fell 3.6 percent in 2009 after declining two percent in 2008. Up until the financial crisis, American giving had increased every year for the past 23 years.

What’s behind the reluctance? The investing trends of the wealthy may hold a clue. Lyle LaMothe, the head of US wealth management at Merrill Lynch, told me during an interview on my Bloomberg Television show that the wealthy are “trusting, but verifying whatever it is that they’re involved with on the investment front.” Translation: There’s a fear of getting burned, and the wealthy want to know where every penny is going.

Maybe the titans of philanthropy can convince others to open their wallets. Microsoft founder Bill Gates and Berkshire Hathaway chairman Warren Buffett recently made a personal plea for everyone on The Forbes 400 to pledge half of their net worth either now or at their death. If they are successful in getting their ultrawealthy peers to sign onto The Giving Pledge, this effort could raise as much as $600 billion dollars.

If your means are more modest and you want to donate, what’s the most efficient way? Writing a check directly to a foundation that you’ve vetted is probably the most secure choice. What about all of those benefits crowding your summer social calendar? These cocktail parties for a cause tend to be among the most inefficient fundraisers. According to watchdog website Charity Navigator, events bring in about $40 billion a year to various organizations. The problem is that a typical charity spends around $1.33 to take home a dollar in contributions. That compares to an average overall fundraising rate of $0.13 to raise $1. The bottom line is that unless the host organization runs a very tight budget, the event itself may not be financially helpful.

Does that mean that you should forego the next Hamptons fundraiser? Not necessarily. If you’re more likely to buy a ticket than to get directly involved with a cause, this may be the only way that your funds will end up at a fundraiser. The lesson here is simply to pay attention to how a charity spends its own money for an indication as to how they’ll spend yours. As with all types of investing, do your homework—that way you can feel more secure and generous with your wealth.

By Margaret Brennan

Tale of the Tape

July 25, 2010

Memo to BP chief Tony Hayward, Goldman Sachs CEO Lloyd Blankfein and all you other company heads: If you don’t tell your own story, someone else will tell it for you.

If you’ve ever watched a Congressional hearing, one thing that stands out is that the public doesn’t understand what many of these firms do. That’s partly the company’s fault. If the first CEO interview or outreach to the public comes mid-scandal, half the battle has been lost. The CEO is then responding to accusations instead of giving explanations.

For example, few people know that BP is the largest oil producer in America. In fact, 40 percent of its oil assets are in the US, and American investors own 47 percent of its stock. In other words, BP isn’t a purely “foreign” firm, and it has a lot of incentive to fix the damage to the Gulf Coast’s economy and ecology. It’s possible that massive fines, even if warranted, could devastate BP’s financial health to the extent that taxpayers might have to pick up the rest of the cleanup bill. While analysts have discussed these concepts a great deal on my program, I haven’t heard much talk like this from the company itself.

In the case of Goldman Sachs, the firm didn’t engage with the press until after the SEC brought fraud charges against it for questionable mortgage investments. That left enough time for the court of public opinion to make up its mind without hearing the defense. Good luck unraveling first impressions—Rolling Stone’s Matt Taibbi beat the firm to the sound-bite punch line when he compared Goldman Sachs to a “giant vampire squid wrapped around the face of humanity.”

Consumers relate through experience. Unlike Citi or Bank of America, Goldman’s name isn’t emblazoned on people’s credit cards or ATMs. Main Street has an idea of what Goldman Sachs is, but little concept of what they actually do. That vacuum makes them vulnerable.

Moral of the story: When it comes to the press, play offense rather than defense.