Creating the right structure to facilitate positive change.

Australian not-for-profit organisations (NFPs) need to better collaborate with strategic partners, the corporate sector and government to tap into the full potential of philanthropy in fostering social change, according to a new report released by The Trust Company.

Produced in partnership with the Melbourne Business School, Engaged Philanthropy in practice at The Trust Company – Building Momentum explores the impact produced by NFP grantees since the Trust Company launched its Engaged Philanthropy grant model in 2011.

The Trust Company distributes $3.5 million from its portfolio of 17 discretionary charitable trusts to select Australian charities in the areas of socially inclusive education, positive ageing, living with disability, and social sector enterprise, capacity building and innovation. Charities involved in the program include The National Stroke Foundation and The Florey Institute of Neuroscience and Mental Health.

The Trust Company’s Head of Philanthropy & Community, Simon Lewis, said the focus for the program is building a framework through the Theory of Change approach, which enhances the strategic impact of grants made by benefactors through The Trust Company as trustee.

“Unlike the traditional philanthropy model, the pool of resources available to strategic partners in this program is not limited to monetary grants – it invests in the capacity, skills development and strategic rigour within the organisation.

“It’s about creating the right structure to facilitate positive change and create accountability in the system,” he said.

Melbourne Business School’s Asia Pacific Social Impact Leadership Centre’s Trust Company Fellow, Liz Gillies, believes the Engaged Philanthropy platform sits on the strategic end of the gift giving spectrum and goes a step further by providing multi-year grants and support.

“Accountability of social impact has never been more important. This report highlights the fact philanthropy is an important catalyst, and it’s critical that NFPs collaborate with all sectors in bringing about positive, sustainable social outcomes,” she said.

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Shailendra Singh

The Asia Pacific region continues to be the biggest source of investment into Australian managed funds, according to the second annual Australian Investment Managers Cross-Border Flows Report, released yesterday by the Financial Services Council and The Trust Company.

The FSC-Trust Company report shows that Asia accounts for 66 per cent of all fund flows, followed by Europe (including the United Kingdom) at 24 per cent. Collectively, Europe and Asia account for 90 per cent of all fund flows into Australia.

Since the first study, which began on 1 January 2010 to coincide with the implementation of a new Managed Investment Trust (MIT) regime, investment flows into Australia have increased by 78 per cent from $20.3 billion to $36.2 billion − an average increase of 21.3 per cent per year, compound.

John Brogden, CEO of the FSC said: “The report shows the massive potential export market for Australian financial services”.

The FSC estimates that revenue from the management of overseas funds could inject as much as $700 million into the Australian economy each year.

CEO of The Trust Company, Shailendra Singh said: “Australian funds management expertise is widely recognised across the region. In addition to good levels of inflows into Australia, our managers have invested approximately 24 per cent of these flows in offshore assets.

“We have seen an increased focus in Australia by foreign investors, which has been evidenced in the sale of Port Botany and the Barangaroo project.”

According to Mr Singh, the stability of Australia’s economic and political environment has attracted a large proportion of fund flows from Asia in Australian fixed interest and cash. This asset class comprised 49 per cent all of cross-border investment.

“While interest rates in Australia are at an all time low, they are considered to be a good investment as they are comparatively higher than in Asia,” Mr Singh said.

The report findings also show fund managers are the largest source of inflows at 37.5 per cent, followed by pension funds at 31.6 per cent.

The FSC-Trust Company Australian Investment Managers Cross-Border Flows Report highlights the significant potential of Asia as a source of foreign fund flows. While Asia has 60 per cent of the world’s population, it has 12 per cent of the worldwide FUM market. In comparison, the US has 12 per cent of the world’s population and has 57 per cent of FUM.

Mr Brogden also said: “The proportion of funds sourced from overseas has the potential to increase exponentially if the right policy settings are in place. The finalisation of the Investment Manager Regime and the Johnson Report recommendations will further grow the market potential and capitalise on Australia’s expertise as a fund manager.”

“It is clear the Asia Pacific region holds large, untapped opportunities for the Australian financial services industry, with phenomenal potential for Asia to quickly increase its overall share of funds management activity. Australia needs to ensure it is positioned to capitalise on this.”

“The government has shown its commitment to the region with the signing of intent of agreement for the Asia Region Funds Passport in September. It is time to focus on completing the Johnson Report recommendations as a priority,” he said.

Key findings

• The flow of funds into Australia through MITs increased by 78.3 per cent over three years from $20.3 billion at 1 January 2010 to $36.2 billion at 31 December 2012
• The Asia Pacific region continues to be the most prevalent source of fund flow into Australia with 66 per cent of funds sourced from the region. Europe is the second largest contributor accounting for 24 per cent of total fund flows of which the UK contributed 5.9 per cent
• Australian fixed interest and cash was the largest asset class at 31 December 2012 − 49 per cent of the sample
• Fund managers were the most prevalent investor type at 38 per cent closely followed by pension funds at 32 per cent
• Overseas asset classes accounted for 24 per cent of investments.

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South Korean investment hits a record high.

Foreign direct investment flow from South Korea into the Australian market is set to hit a record high in 2013, with institutional investors in Australia’s fourth largest trade market buoyed by a desire for core property and infrastructure assets, according to The Trust Company.

Speaking at a seminar with Austrade in Sydney, The Trust Company’s General Manager – Corporate Clients, Andrew Cannane, predicted 2013 to be a watershed year with South Korean investment in foreign infrastructure and property likely to exceed $5 billion including over $1 billion to Australia.

“South Korea is the next big thing. These investors prefer transparent markets with good professional standards and corporate governance, so they are focusing on the core markets of the US, UK and Australia. They have told us that they regard Australia as one of the best core property markets in the world,” Mr Cannane said.

Despite retreating to focus on local investments post GFC, South Korean pensions funds, in particular, have been driving the next wave of investment into Australia with recent deals including Central Coast-based Erina Fair and Spring St in Melbourne whilst another Korean investor is in due diligence on Sydney’s Four Seasons Hotel.

“South Korea’s National Pension Scheme, which represents the fourth largest pension fund in the world, is leading the push in Australian investment, with the country’s growing inflow of pension contributions expected to further boost foreign direct investment,” Mr Cannane said.

A presentation from Austrade’s Gabriella Nunes noted that South Korea is Australia’s fourth largest trading partner (two way trade) worth A$33.3 billion in foreign trade.

South Korean investors favour lower risk, lower return investments, such as commercial office buildings with long leases to government tenants and will seek to manage FX and interest rates by hedging.

“South Korean institutional investors have a strong knowledge of investment structures available to them, including MITs and thin capitalisation as well as an understanding of stamp duty requirements,” Mr Cannane said.

“South Korea has the potential to be a significant player in Australian property and infrastructure markets in the years ahead.”

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Foreign investment to impact Australia’s infrastructure development.

The way Australia solves its infrastructure challenges will impact the level of foreign investment flowing into the country, according to The Trust Company, Australia’s only trustee with licenses to operate in Australia, New Zealand and Singapore.

Speaking at a recent symposium held by Infrastructure Partnerships Australia, The Trust Company’s General Manager – Corporate Clients, Andrew Cannane, said Australia remains an attractive investment destination for investors relative to other jurisdictions.

The rising trend in Australia of privatising public assets, and the increasing sophistication of global investors and pension funds, means demand for key infrastructure assets in Australia is on the rise.

“Australia has a pipeline of attractive and profitable infrastructure assets, that will ensure investment continues to flow in this area,” Mr Cannane said.

However, he believes a lack of clarity on policy decision-making may impede on the protection of infrastructure assets, and impact on their prospects.

Discriminatory changes in law have the potential to encroach on the business profile of an asset bought, particularly on large-scale infrastructure projects such as ports.

Mr Cannane says legislative changes such as doubling the MIT withholding tax rate or tinkering with the thin capitalisation rules have the potential to weaken asset values.

“Despite strong competition for the quality of assets that come up, if investors can’t predict what the government might do in the future that has the potential to drastically change the profile of the asset,” he said.

He said regulatory uncertainty was particularly unsettling for foreign investors looking to enter or deepen their interest in the Australian infrastructure sector.

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The Trust Company appointed as trustee for ANZFF2.

The Trust Company, a leading property and infrastructure custodian and Australia’s only trustee with licenses to operate in Australia, New Zealand and Singapore, has been appointed Trustee of ANZFF2.

New Forests manages investments in sustainable forestry for institutional and other qualified wholesale investors. New Forests executes three investment strategies that provide clients with diversity and choice around risk-adjusted returns, geography, and market exposure: sustainable timberland investment in Australia and New Zealand; forestry investment in high-growth markets of the Asia Pacific region; and conservation real estate and environmental markets investment in the United States. The company has offices in Sydney, Singapore, and San Francisco and currently manages AU$1.8 billion in committed capital and assets and over 415,000 hectares of land in Australia, the United States, and Asia.

“Australia and New Zealand offer attractive but distinct timberland investment opportunities, with some premier assets likely to come to market over the next two to three years,” said David Brand, New Forests’ Managing Director. “New Forests has demonstrated an ability to invest successfully in our region. We offer our clients specialist expertise and local knowledge in a region exposed to demand growth from both domestic and Asian export markets.”

The Trust Company General Manager Corporate Client Services, Andrew Cannane, said, “The Trust Company is pleased to once again provide Trustee services to New Forests and its second Australia and New Zealand forestry fund. The investors in these funds—large offshore and onshore pension funds—feel secure in the knowledge that there is an independent party appointed as trustee and custodian. This is the value that a trustee company, such as The Trust Company, with licenses to operate in Australia, New Zealand and Singapore, adds to the process.”

ANZFF2 is a closed end fund that will provide institutional investors exposure to plantation forests and forestry land in Australia and New Zealand. The fund currently has AU$570 million in capital commitments and will by managed from New Forests’ Sydney headquarters. The Trust Company is also the Responsible Entity of the New Forests Australia New Zealand Forest Fund (ANZFF), which commenced in 2010 and is now fully invested.

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The 2013 Miles Franklin longlist will be announced in mid-March, followed by the shortlist announcement at a public event on 30 April at the State Library of New South Wales. The winner will be announced at the National Library of Australia in Canberra on 19 June. 

There have been 73 entries received for the 2013 Award, representing a 30% increase from 2012. 

The Trust Company’s Head of Philanthropy and Community, Simon Lewis, announced the Trustee’s focus for the 2013 award is to expand and engage the audience behind the award, by encouraging as many Australians as possible to support and recognise the importance of Australian literature.

“Twitter is a great vehicle to reach a new audience for the Miles Franklin Literary Award and further promote Australian literature, a wish expressed by Miles Franklin in her will which established the award,” Mr Lewis said. “As Trustee of the Award, we are actively working to maintain its heritage as Australia’s most prestigious literary award and enhance the legacy Miles Franklin entrusted with us.”

In continuing this theme, The Trust Company also today announced the Copyright Agency’s Cultural Fund has agreed to provide financial support for a project with the English Teacher’s Association to develop teaching modules to promote the teaching of Australian literature in schools. 

“The Miles Franklin Literary Award is an important event in celebrating Australian Literature and this initiative broadens this to the education system, and complements the work the Copyright Agency is already doing in funding the Reading Australia Project,” Mr Lewis said. 

The Trust Company recently announced the prize money for the Miles Franklin Literary Award would rise to $60,000 this year (up from $50,000 in 2012) and continues to campaign the Government to make the prize, and other iconic awards, tax free.

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Detailed in the Federal Budget, the Significant Investor Visa (SIV) is available for those who invest A$5 million or more into complying investments which include ASIC regulated managed funds with a mandate for investing in Australia. It came into force on 24 November.

Today’s seminar, hosted by The Trust Company, is for funds managers, property funds and private equity funds as well as industry service providers to discuss the exciting opportunity for the industry.

The initiative aims to promote foreign investment in Australia and replicates similar schemes in the UK, New Zealand, Canada and Singapore.

The Trust Company – Australia’s only trustee with licenses in Australia, New Zealand and Singapore – has seen an increase in inquiries to its Singapore and Sydney offices, from those looking to capitalise on the SIV opportunity, said Mr Andrew Cannane, Head of Corporate Client Services.

“As a net importer of capital, Australia needs foreign investment and we expect the SIV will result in substantial capital flows into Australia” said Mr Cannane. He estimated that a billion dollars had already been committed to funds set up for this purpose.

The Trust Company has been appointed as custodian to one Significant Investment Visa Fund, which is available for investment for holders of the new Significant Investor Visa, and it is in discussion with other providers about the provision of RE and custody services for other upcoming offerings.

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The report, Do Not-For-Profits Need to Take More of a Risk?, was published by The Trust Company following consultation with 210 NFPs. The report found investment strategy to be a lesser priority for NFPs than fundraising, regulations/compliance or administration/operations.

Formal strategies outlining investment goals, asset allocation and risk appetite were more prevalent for organisations with more than $25 million (75% prevalence) compared to smaller organisations with less than $1 million (only 20% prevalence).

With more than 40% of NFPs dependent on government grants as their primary source of funding, The Trust Company suggests investment management strategies with a focus on income and fixed dollar targets, rather than total returns, could be a viable solution.

Steven Marsh, General Manager Investment Management at The Trust Company, said: “There are many options for the sector to better support their fund flows. An investment strategy focused on delivering consistent income by investing in quality securities can assist NFPs to better meet their philanthropic commitments.”

Volatility drives NFPs to cash
Despite 75% of organisations reporting they were ‘extremely’ or ‘very concerned’ about fundraising, few appear to be including income generating investments within their portfolios, with as much as 75% of NFP portfolios invested in cash and term deposits.

Mr Marsh cautioned NFPs need to remain alert to investment opportunities to ensure they do not miss out on a market recovery.

“Capital accumulation and wealth generation are equally important. The capital base of the portfolio needs to outgrow inflation over the long term, so that income continues to grow into the future. While NFPs may believe they are protected from volatility by investing in cash, in a declining interest rate environment such a strategy is unlikely to meet their increasing income needs or provide protection from rising inflation,” Mr Marsh said.

Simon Lewis, Head of Philanthropy and Community at The Trust Company said: “Being responsible for the distribution of more than $40 million in charitable funds each year, The Trust Company takes its role within the NFP sector very seriously. We undertook this study to improve understanding of how the sector plans to meet the growing demands placed on it, how their funding models are evolving and whether organisations are giving due consideration to effective investment management to help meet their income needs.

“As both a distributor of grants to NFPs and an investment manager of charitable funds, we believe there is an opportunity to educate the NFP sector on how prudent investment management combined with effective fundraising strategies can be used to enhance the income to invest in the NFP, and by inference, the social impact NFPs have on their target communities,” Mr Lewis said.

The Trust Company Group has almost $1 billion in charitable funds under administration. Currently it serves as trustee for over 850 charitable trusts, including the Miles Franklin Literary Award, Marten Bequest Travelling Scholarships and the Portia Geach Memorial Award. In 2011 The Trust Company also embarked on its Engaged Philanthropy strategy for granting from its broad discretionary trusts.

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