Famine or feast
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Famine or Feast ?. Arthur Wood [email protected] The Current Status Quo. The Current System is Highly Inefficient Despite Bono (or Geldoff if you are my generation) If things are left as they are – it will get worse Demographics and Aging & Health in Western Countries

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Famine or Feast ?

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Famine or feast

Famine or Feast ?

Arthur Wood

[email protected]


Famine or feast

The Current Status Quo

  • The Current System is Highly Inefficient

  • Despite Bono (or Geldoff if you are my generation)

  • If things are left as they are – it will get worse

    • Demographics and Aging & Health in Western Countries

    • Compounded by Political Fudge – i.e. Maastricht Criteria

      • Unfunded Pension Liabilities raise GNP/ Debt from 110 % to 300% + in Italy or in Canada $300bn> $2.2 trn

      • To maintain current system in Germany tax take must rise from 20% - 40% of total tax take in Germany

PEOPLE WE SERVE ARE AT THE BOTTOM OF THE FOOD CHAIN


Population aging is a worldwide phenomenon that will affect all g 7 countries

“Population aging is a worldwide phenomenon that will affect all G-7 countries”


Famine or feast

“The projected decline in the employment-to-population ratio will gradually become a hindrance to growth in living standards beyond 2010”


Population aging will be a key challenge facing the canadian economy over the coming decades

“Population aging will be a key challenge facing the Canadian economy over the coming decades”


Famine or feast

How Bad is the Financing Structure?

  • Primary Pillars of Financing – State and Market:

  • State Model – Picking winners in development

    • Developing world $2 trillion allocated 1955 - 2004 (in 2004 Dollars) adding at $100bn

    • 50% of All African Govt Expenditure. Sub Saharan Africa - 80% of All Capital allocations > Capital Flight in 1 year

    • Top Down “Donor” Model – Government knows best Bretton Woods 1944

    • Not a way to target capital to the base – i.e. Ashoka Fellow Fabio Rosa

      So 20-80% of the Capital does not even arrive


Famine or feast

Market System Any Better ?

  • System invented by Carnegie in 1888 and crystalised in the US tax system in 1921 /35

  • Market is Huge - Social Capital Market $1 trillion + in US alone – $300bn funding gap

    BUT

  • In US only 3.8% of C.O/NGO have revenues greater than $10 million

  • Only 0.1% of Entities Founded since 1973 have achieved $50m + in Revs - Of which Foundations / Individuals account for 8% of the 0.1% in sustainable funding.


Famine or feast

Market System Any Better ? (ctd)

  • Everybody Negotiates Bilaterally – no aggregation systems. No Economies of Scale

  • Competitive Advantage in such a Capital market is about Innovation NOT Innovation in Scale nor collaborative

  • The process results in further Fragmentation

  • On the Funding side >>Small band aid solutions or Large Foundation take up to 2 years + to do due diligence

    Cost of Capital Allocation 20-50% vs. 2-5%

    Irony for Donors – 50 cents on the Dollar


Inefficiency of the current capital market compounds the problem

Inefficiency of the Current Capital MarketCompounds the Problem

Current allocation systems are taking20%-50% + off before usage

Indeed how efficient is the current Market allocation system even after it arrives – with a huge number of small entities with limited Economies of Scale

Or on the Governmental side driving top down through the existing status quo.

Post 1980 is this how we now drive change ?


Famine or feast

BUT Grounds for Optimism

  • Largest ever transfer of Human wealth - $41 Trillion in US alone with 1% transferring 60% of this wealth – the Gates effect >> Private Banks

  • Growth of Philanthropy – Values, Globalization – I.T.

  • The Third Pillar - Growth of Market Allocation

    • Social Entrepreneurship – 500m people impacted

    • Venture Philanthropy - $400 m

    • Investment / Asset Mgmt / Banking Engagement - $6.5bn

    • Microfinance – Yunus – Estimated Market 3bn users

  • Growth of Citizens Organization and Entrepreneurship


Famine or feast

THE SAME HISTORICAL FORCES ARE AT WORK

INTHE GERMAN HEART OF EUROPE

German Employment Indexed to 1960

Source: McKinsey analysis of data from Johns Hopkins Nonprofit Sector Series


Famine or feast

CITIZEN SECTOR GROWTH IS ACCELERATING IN THE US

Number of Organizations Indexed to 1982

Source: The Independent Sector: The New Non-Profit Almanac in Brief (2001), IRS (2002)


Providing capital to poor farmers at libor or below

“Providing capital to poor Farmers at LIBOR or below”

  • Currently Investors in the Social Sector primarily offered only two options – Negative 100% IRR or Plus 5% IRR

  • But conceptually Best Practice / Metrics / Investors in reality between these two Points

  • Reallocation of existing subsidies. A Capital market where two players already accept -100% - UHNW’s & Supra-nationals

  • The tools of 2008 not 1888 - Leverage Structured Risk Return / Derivative products

    >> Improve the RISK Products - Credit structure – CCC>>AA

    >> Increase RETURN - provide High Contingent Returns

    >> Risk Management – Insurance models

    >> TO BRING PRIVATE CAPITAL AND IDEAS IN SCALE INTO THE MARKET


Famine or feast

Expanding the Product Range

Entry of banks with Capital Market Instruments

Social Investing Ventures

Breaking down legal structureCIC &L3C

PRI / LLC

Plus 5% (and beyond) IRR

Minus 100% IRR

“Not For profit” Foundation Grant model

“For Profit” Iterations of Venture Capital models

THE IMPORTANCE OF COLLABORATION AND CHANGE

To solve the problems on a systemic basis requires:

Collaboration from the social sector

Creation / Evolving of Intermediaries to create Collaborative behaviour

Foundations – Leverage Capital, Increase Innovation but HOW to draw in more Private capital

Governments to change legislation – Tax treatment and Legal structures

Banks to bring their skills to bear


Famine or feast

Maritime Theme


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