"We stiften Stiftungen."

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Philanthropy. With a sub-foundation to the Merck Finck Foundation, people oriented toward the common good can achieve everything that would be possible in a legally independent foundation - only easier, cheaper and more efficient. A very special model.

"In principle, the Merck Finck Foundation is a house in which all people who want to do something for the common good can move in immediately," explains Foundation Chairman Ralf Schwind: "The rooms are furnished, everything is prepared. A professional property management takes care of the work involved. The donors can concentrate on what they really want to do - promoting a very specific goal with their commitment."

When Merck Finck gave the initial spark for its foundation in 2007 with 250000 euros, the bank had zwei Ziele in mind. "First, we wanted to do something for society ourselves.However, Wir already had in mind at that time to give our customers a simple, efficient opportunity to become active as a donor within the framework of a sub-foundation".

In fact, as all experts agree, the foundation system in Germany today is far too fragmented. In total there are almost 22000 charitable foundations. At three quarters, the basic assets are below the million mark. Half of it is less than 500,000 euros.

"That's too little. If two Prozent Ertrag are gained - in the zero interest era that is quite realistic -, straight once 10000 euro are available. The administration, the governing bodies, the annual accounts and the asset managers must be paid from this amount. In the end, the foundation does a lot of work, but there is hardly anything left for the purpose of the foundation itself," calculates Schwind and concludes: "In all these cases, the sub-foundation to a larger unit is the better way".

There are usually two reasons why many philanthropists still avoid this variant. "Firstly, those who donate cannot choose the projects they want to support themselves. He only participates in the activities of the superior foundation. And secondly, he does not work under his own name", erklärt Schwind.

The Merck-Finck Foundation model addresses these two obstacles. "We have very broadly defined 15 foundation purposes in the umbrella foundation. Almost all conceivable funding options can be subsumed under these. Every donor can therefore support exactly the project that is close to his heart," explains Schwind. Should this not be possible, the foundation board can even extend its statutes. "We have already done this twice in order to be able to integrate projects of our donors - at that time it was all about animal protection and charity. The supervisory authority is very cooperative on this."

The donor role can also be filled out within the Merck Finck Foundation under your own name. "The name of the sub-foundation is, for example, "Stiftungsfonds Max Mustermann", erklärt Schwind.

This point is very important to many donors. Studies by the Association of German Foundations show that around 60 Prozent of all foundations in Germany bear the full name of the founder, the surname or that of a family member. It is not at all a question of increasing one's own prestige or influence. The founders cite the fact that they would like to leave traces as a reason. Der own name is to be maintained beyond death - especially if there are no own descendants and he would die out otherwise possibly. "That's exactly why three-quarters of our endowments are in the name. Clients like it when the foundation is connected to them and they remember it for posterity".

In this way, the Merck-Finck model avoids all the disadvantages that a sub-foundation im Vergleich could have for becoming a legally independent foundation. At the same time, it ensures that the advantages of this variant come to bear.

An important aspect of this is the capital investment. "Diversification is crucial for the langfristigen Anlageerfolg. And in principle applies: The higher the fortune, the better are the Diversifizierungsmöglichkeiten , explains der Bankier. Many asset classes are in fact completely excluded from smaller foundations. Weil they do not have the necessary minimum investment, the analytical competence or the network. The Merck Finck Foundation has invested zum Beispiel in a cocoa plantation. And is now thinking about intensiv über Private Equity. "A small foundation can't do that," Schwind is convinced.

The long-term return prospects are thus also better. "The lower limit of what we want to distribute each year is two percent. In 2017 we were able to sweep out 2.5 percent to our donors. It is important to us that the donors can calculate with a relatively safe yield every year."

This is possible in times of zero interest rates, because the Merck Finck Foundation has always invested comparatively substance-oriented and sets a high value on auf Sachwerte in the process. "Our philosophy is: A charitable foundation is tax-exempt primarily because it promotes. Not because it receives the capital in every accounting year", erläutert Schwind. "We want to ensure this efficiency through investment. If then the prices and thus the book values of the investments fluctuate, mit Blick is almost irrelevant on our more than ten-year investment horizon."

Most foundation board members would sign that.Nevertheless, Sie shy away from a more offensive approach because liability in the event of interim price losses is not clearly regulated. "That's another advantage of our model," nods Ralf Schwind, "because we're responsible for the investment, the liability question doesn't arise for donors."

In addition, they benefit from economies of scale in the distribution of costs and unprecedented efficiency. "We have only three cost blocks - membership of the Association of Foundations, year-end closing costs and asset management, which is 0.5 percent. It couldn't be cheaper."

This is feasible only, because donation organs - executive committee, Stiftungsrat, Kuratorium - as well as nearly the entire administration are placed by the bank. "If I spend 25 percent of my working time on the foundation, the bank will not charge the foundation anything. This is something like our contribution to the common good", erklärt Schwind, who is a strategic asset planner at Merck Finck in its day-to-day business.

The concept is obviously convincing. In the meantime, the assets of the Merck Finck Foundation have risen to 15 million euros. "In 2016, for example, we advised an entrepreneur who wanted to donate euros to drei Millionen . That was completely open-ended. He could have made his own legally independent foundation," says Ralf Schwind: "But in the end he said: 'I can actually do all that is possible there much more easily and efficiently than a donor.' He then opted for an endowment." ®

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How the Merck Finck Foundation invests capital.

"We are very satisfied," nods Daniel Kerbach, Chief Investment Officer at Merck Finck. The foundation achieved a proud 6.18 percent return last year. 4.42 percent per annum over the last five years.

His team is thus not only significantly better than most foundations, but would also be far ahead in comparison with the foundation funds: "In 2017, these funds reached auf Renditen between 1.1 and 5.4 percent, in the last five years auf Renditen.0 and 4.9 percent per annum," informs Kerbach.

The expert cites three reasons for this success: "First, we accept more risk. In general, we invest 75 percent in substantial tangible assets." This is possible because the foundation has a long breath. "Our investment horizon is ten years plus. We are therefore not interested in short-term fluctuations. We're not looking at the balance sheet date." A second aspect is the broad distribution. "Diversification is the only good that is free in the markets. In order to make use of this, however, a foundation needs a certain size and a lot of know-how."

On the interest side in particular, it is essential today to look far beyond the horizon and take advantage of opportunities in niches. "Many foundations are too focused on Germany or Euroland."

Kerbach is not only able to draw on its 24-strong investment team for the analysis. "I also get the support of our mother, the Luxembourg KBL Group, and its experts in England, France, Luxembourg, Belgium and Holland. The Dutch in particular, for example, have a great deal of experience with in Sachen sustainability projects. They develop different strategies in areas such as microfinance or tangible assets, the income from which is then securitised in a security. We can make it easy for ourselves."

Kerbach is not disturbed by the fact that this offensive structure is also accompanied by higher price fluctuations - the foundation's returns over the past ten years have been between minus 1.9 and plus 8.0 percent -. "The decisive factor for us is not the book value of the investments, but their distribution capability and robust sustainability. Even if the stock market were to fall by 25 percent tomorrow, we would stick to this quota. After all, the stocks still bring us dividend yields of between 2.2 and 2.5 percent based on robust business models of which we are convinced. This ensures that we can continue to serve the donors' projects."

The chart at the top right shows the current asset allocation of the Merck Finck Foundation. Kerbach explains how he invests concretely:

// 01. shares

"We are concentrating more on small and medium-sized companies because their earnings momentum is higher. We also mix in emerging markets. In terms of topics, we like the areas of automation and robotics. We cover this primarily through funds. Direct investments in individual stocks focus on high-yield securities with high dividend yields and robust business models. We actively manage this part. For example, if our analysts believe that the shares have reached their price target, we sell put options on these positions. Das limits our price opportunities, but provides additional income."

// 02. Debt securities and specialities

"Ein Schwerpunkt are higher-yield corporate bonds with medium credit ratings. We use funds for this. In addition, we mix microfinance investments or special, high-distribution topics such as real estate, student funds, renewable energies or agricultural and forestry projects. “

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Your way to donation.

People who are committed to the common good can donate as little as EUR 20000 to the Merck Finck Foundation. The ersten Schritt defines what the endowment should stand for. "This can be determined down to the last facet of a special funding project", informs Ralf Schwind, "We have a donor who exclusively supports the Red Cross every year. Others change projects. Almost anything is possible because the purpose of the umbrella foundation is extremely broad." The donors always receive information about the foundation income to which they are entitled during the course of the year. "The donor then names the organizations he wants to support. We contact them, organise the exemption certificates and check whether they are in fact non-profit-making. Danach we handle the transaction", erläutert Schwind: "So de facto we are the administratively extended arm of the donor. All he has to do is tell us what he wants to promote."

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Special publication:

Merck Finck Private bankers

www.merckfinck.de

Ralf Schwind, Board Member Merck Finck Foundation, This email address is being protected from spambots. You need JavaScript enabled to view it.

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