The fund that brought Philip Lowe back to the boardroom

When Geoff Wilson AO FAICD, chair and CIO of Wilson Asset Management, chanced to read a 2012 article in the Financial Times, it radically changed his thinking about community giving. 

A group of British investment managers had established a £500m Battle Against Cancer Investment Trust (BACIT), agreeing to waive their management and performance fees to allow one per cent of its net assets to be donated annually to cancer research — without compromising investor returns.

For Wilson, it was a revelation, so he reached out to BACIT director Thomas Henderson to learn more. Two years later, he launched Future Generation with two listed investment companies (LICs) — Future Generation Australia Ltd (FGX) with a $201m IPO, and the Future Generation Global Ltd (FGG) with a $302m IPO the following year.

Since then, FGX has delivered an average annual return of 8.9 per cent, while FGG has lagged slightly with a still respectable average annual return of 7.8 per cent.

More importantly, Future Generation is well on track to fulfil Wilson’s “big, hairy, audacious” goal of raising $100m for NFPs by 2030, with $75.8m in the bag already.

Under the Future Generation model, about $10m is donated to charities annually for every $1b managed. The money goes to groups including Giant Steps, RAISE Foundation, Youth Off The Streets and Australian Children’s Music Foundation.

On 12 March, Future Generation Australia announced that Dr Philip Lowe, Reserve Bank of Australia (RBA) governor from 2016–23, had joined its board as an independent director, effective immediately. He will become its new chair following the company’s AGM on May 7. The former chair, ex-NSW Premier Mike Baird AO, will remain on the board as an independent director.

“I knew commitments would be challenging, but was determined to stay involved with Future Generation Australia,” says Baird. “My question to the team was, if we find a suitable chair, would that enable me to remain as a director? We agreed the new chair would have to be someone exceptional. It took a while, but we found an incredible chair and I’m very proud to serve alongside him. Phil is well-known to the markets as someone with impeccable integrity and great capacity. ”

This is Lowe’s first board appointment since leaving the central bank last year.

“I think the Future Generation model is brilliant,” he says. “I’ve always strived to be associated with organisations that enhance the welfare of Australians, so it’s a privilege to work with Future Generation Australia’s shareholders and pro bono fund managers to support our most vulnerable youth.”

How it works

The investment model is simplicity itself. The LICs are managed by investment committees on a pro bono basis. Their role is to leverage their extensive networks to identify the best managers, ensuring the portfolio has the right mix of managers and investment styles to meet their objectives.

Investors buy equity in either of the two LICs, with that equity then allocated to — and managed by — more than 30 Australian and global fund managers, including Paradice Investment Management’s David Paradice AO FAICD, Cooper Investors’ Peter Cooper MAICD and Regal Funds’ Philip King. Like BACIT, all their work is pro bono, allowing a donation of one per cent of net assets annually to the NFPs.

Shareholders, the NFPs and fund managers all benefit. For investors — the shareholder base mostly comprises retail, high-net-worths, private ancillary funds and charities — it offers the opportunity to invest with quality Australian and global fund managers typically off their radar, with the investment goal of getting a fully franked dividend stream, long-term capital growth and preserving shareholder capital. It also provides them with the opportunity to make charitable donations without taking a hit in the hip pocket.

Future Generation CEO Caroline Gurney says the approach “democratises philanthropy”.

“In Australia, you’ve got a high concentration of wealth, so you get the same people donating to the same causes over long periods of time. But our model has no barriers to entry aside from being able to buy a few shares, so it really broadens the base of people who can make an impact.”

Katherine Raskob GAICD, CEO of the Fundraising Institute Australia, concurs. “The Future Generation provides a vehicle for Australians to both give and get a return,” she says. “It’s managed by fund managers who donate their time and expertise to enable that return. From a fundraising, and volunteering, perspective, it’s a win-win.”

For the NFPs, it provides a stable, multi-year funding stream, giving them the opportunity to focus on their core mission rather than fundraising. It gives the fund managers the opportunity to make a significant contribution to the community without having to write a cheque or donate extra time. They simply run the Future Generation money in their portfolios, so no additional work or research is required.

Risky business

“There is so much goodwill in corporate Australia, but they often need the mechanism,” says outgoing chair Baird. “The Future Generation structure is such a mechanism. It’s incredibly innovative in that it gives fund managers the chance to use their skills to raise serious funds. I believe that with the right structure, sector knowledge, controls and governance, this model could revolutionise philanthropy in Australia.”

However, fund managers can, and do, get it wrong. Bad investment decisions are made, and Wilson does not shy away from the fact that just because these LICs have a philanthropic bent, these investment vehicles still come with risk. Like all investing, they should be assessed as part of a portfolio that suits an individual’s risk appetite.

A “replicable and sustainable” model

The question arises as to why this investment model, which comes with a measurable philanthropic outcome, has not been more widely adopted. It doesn’t have to be equities, with the model having the capacity to be replicated with other asset classes such as property or fixed income. Part of the answer could simply be that it is not well-known in the market, acting as a dual-purpose investment. It also requires time, energy, capital and commitment to set up and oversee.

“Provided a company thoroughly understands its market, this style of dual-purpose investment model is replicable and sustainable,” says Wilson. “Although it requires a significant investment in terms of time and money, the company is likely to be rewarded with enhanced employee morale, motivation, commitment and performance, as well as improved business reputation and customer loyalty.”

Certainly, it’s a commitment in time and capital, not just on the investment front. In 2019, Future Generation engaged Australian Philanthropic Services to conduct an external review of all its NFP partners. And for the past 18 months, FGG has been working with impact measurement specialists to build a groundbreaking tool that will allow the tracking of its individual partners’ progress and the collective impact of the portfolio. It also launched a strategic review in 2020. 

Such reviews are critical. Raskob cites the McCrindle Future Donor report that shows the proportion of donors giving regularly has declined to 13 per cent in 2023.

“Other channels of fundraising, including regular monthly giving, have slower growth,” she says. “By contrast, single gifts and emergency giving have grown faster, with Gen Z and Gen Y more likely to be opportunity givers.”

The report found Australians had a high degree of trust in charities, but getting them to donate is difficult. For Raskob, this means fundraising organisations must take advantage of any opportunity to capture the imagination and attention of donors. “We can’t rely on the usual channels and techniques. We need to think more laterally about how to encourage giving, so the Future Generation, as one more opportunity for generosity, gets our tick of approval.”

Future Generation’s private giving targets youth mental health prevention

In 2020, the Future Generation was becoming increasingly aware of a worsening youth mental health crisis. For Future Generation Australia (focusing on organisations supporting children and youth at risk, such as the Australian Indigenous Education Foundation) and Future Generation Global (assisting organisations that promote wellbeing and prevent mental ill-health in young Australians, such as Human Nature) it was a red flag.

It prompted a full-scale strategic review to determine whether the role being played was achieving its full potential. In the words of Future Generation social impact manager Emily Fuller, private giving is most useful when it embraces the role of risk capital — funding areas that have high potential to create social good, but are overlooked and underfunded by others, particularly government.

“Mental health prevention is one example,” says Fuller. “Our extensive, 18-month review found that, combined, governments spend only about one per cent of their mental health budgets on prevention. This makes prevention an area in mental health where private givers can punch above their weight. In the wake of the review, we evolved our approach to fund small to medium-sized NFPs with a proven track record, but still enough ‘runway’ to significantly deepen their impact. We provide them with multi-year, untied funding to grow their organisations. This
method of giving, investing in the organisation instead of a specific project, is another way private givers can add value.”

Fuller adds that Future Generation’s NFP partners tell them the consistency of a multi- year commitment is incredibly impactful. “It means they can plan and direct more resources to their core mission instead of fundraising. It also means we have open, honest discussions with our partners about their needs and opportunities, providing valuable insights about the reality on the ground, helping us to be more effective in our giving.”

FGG chair and former Business Council of Australia CEO Jennifer Westacott AO FAICD elaborates. “We are highly engaged with our NFP partners — not just to ensure that they are accountable, but to ensure we’re supporting them. We hold regular discussions with them through a range of... channels, from our annual reporting and donation voting processes through to site visits, roadshows, meetings, a bi-monthly virtual community of practice and our annual exchange event.

“Our partners’ work is complex, which makes tracking their impact tricky. But our shareholders and other stake- holders deserve to know what their social investment is achieving. So, FGG has built a sophisticated impact measurement tool to track our partners’ individual progress and the collective impact of the portfolio.”

Merits of the model

The Mirabel Foundation sees the Future Generation model as the way of the future for charities.

The Mirabel Foundation was established in Victoria in 1998 to address the needs of children orphaned or abandoned due to parental drug use. An early recipient of Future Generation funding, it got its first donation in 2015 to set up its Toddler to Teen program. Since then, Mirabel has received $2.4m over a journey that founder and CEO Jane Rowe OAM calls “incredible”.

“[Wilson Asset Management chair and CIO] Geoff Wilson AO FAICD nominated us to be one of Future Generation Australia’s initial charities,” she says. “When it was decided for FGX to have a bigger impact on a small number of NFPs, we were selected to be part of this program. With Future Generation, it’s very much a partnership. They are very present, not only supporting us financially, but helping
raise awareness of our Foundation via initiatives such as inviting me to be on the FGX podcast, 2fold: Investing for Impact, which exposes us to a new audience of potential investors.”

Rowe needs no convincing about the merits of this model of NFP funding. “This is the future, allowing shareholders to feel positive about giving back to the community through their investments and empowering organisations such as ours to use our discretion and expertise to spend the money where it is needed most,” she says.

“Our Toddler to Teen program allows us to support the children who need help immediately. Unlike other donations for specific programs, this funding can be used in crisis intervention, making it instrumental in our growth and stability.”

New ways to give back

Dr Matthew Turnour FAICD gives Future Generation the thumbs-up.

When the former Coalition government was looking for professionals with commitment and knowledge to review the Australian Charities and Not-for- profits Commission (ACNC) — the Strengthening for Purpose: Australian Charities and Not-for-profits Commission Legislation Review was tabled in August 2018 — it was no surprise when Brisbane-based Neumann & Turnour Lawyers chair Dr Matthew Turnour FAICD was tapped on the shoulder to be part of the review panel.

In his professional life, he leads the firm’s commercial and NFP sections. At a personal level, he has had a lifelong involvement in the charity and NFP sector as a volunteer and professional adviser. So, when he says that he likes the Future Generation Fund as a model for donations to NFPs, it’s a view that carries weight.

“I start from a premise that any structure that leads to greater support flowing into the voluntary sector is good because it supports equality and civil society engagement,” says Turnour. “It typifies the emergence of new ways of behaving altruistically. There is a shift occurring in volunteering and philanthropy that we’re only just beginning to discern.

“We lament the decline in volunteering and giving through charities. But we must not overlook the emergence of new models for altruistic contributions. What we see modelled with [Wilson Asset Management chair and CIO] Geoff Wilson AO FAICD and others involved in the Future Generation Fund, is people finding new ways of giving back — from their particular context, with their particular skills.”

This article first appeared under the headline 'The big hairy audacious fund that got Philip Lowe back into the boardroom’ in the May 2024 issue of Company Director magazine.