Responsible investing is moving up the agenda as a new generation takes the reins at family offices.
A new generation of family offices is placing greater emphasis on social and environmental responsibility, but many are unaware that impact investing and attractive returns don’t need to be mutually exclusive.The UBS/Campden Wealth Global Family Office Report 2017 found that 28.3 percent of family offices are currently engaged in impact investing, with 40 percent expecting to increase their allocations to the sector.
This is driven in part by the gradual maturation of ultra-high-net-worth millennials who are beginning to take a more active role in the management of their family assets.
“There’s been a fundamental paradigm shift within one generation; previous generations saw business and philanthropy as two very different things – the new generation sees business, investment and philanthropy as all having potential for positive impact,” James Gifford, senior impact investing strategist at UBS, told sister publication Private Equity International.
“Millennials have grown up with climate change being very present in their education and media.”
Gifford also serves as a senior fellow of the Initiative for Responsible Investment at Harvard Kennedy School in Massachusetts. The course, which educates “next gen family members” on theory surrounding the social purpose of ?nance, was oversubscribed in 2017.
Despite this burgeoning interest in societal and environmental reform, many family offices and advisors are still unaware that they can achieve the same risk-return pro?le with a 100 percent sustainable and impact-based portfolio as with traditional alternative assets, Gifford said.
Just 9 percent of private equity-focused investors reported underperforming impact portfolios in 2016, compared with 15 percent whose returns outperformed expectations, according to the Global Impact Investing Network’s Annual Impact Investor Survey 2017.
Family offices need not choose between creating a positive impact and generating returns, provided they understand “which bucket of capital is appropriate to seek what types of impact or sustainable investing strategies,” Gifford said.
UBS advocates putting capital to work across a spectrum comprising liquidity, longevity and legacy. This can be used to achieve varying degrees of sustainability and impact depending on the type of the asset.
Liquidity is short-term capital, such as fixed income, while longevity is intermediate-to-long-term capital, including real estate, hedge funds and active equity. Legacy portfolios, which can include private equity impact funds, are typically invested fairly aggressively over a period of decades and can be used to launch foundations or for philanthropic purposes.
“Millennials understand that they need to have a holistic view of business, investment and strategic philanthropy … [and] that different pieces of capital can be used for different functions. They can and should be proud to be making commercial returns and impact at the same time.”