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A prominent finding among family office portfolios is the rising interest in impact investing and purpose-driven wealth, especially by the next generation. According to the 2018 GIIN Annual Impact Investor Survey, about 229 of the world’s leading impact investor organizations manage over $228 billion collectively in impact assets. More than one-third of family offices are involved in impact investing, increasing 4.2 percentage points from 2016.
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A related trend is wealth management with purpose as nearly all family offices indicated that they planned to increase their sustainable investments in the next year. Thirty-eight of the family offices reported being involved in sustainable investing, commonly investing capital for clean energy, water, healthcare and gender equality.
Thirty-nine percent expect the younger generation will increase asset allocations to impact or environmental, social and governance (ESG) investing. The next generation’s developing interest in impact investing, in contrast to previous generations who were more focused on wealth building, is likely attributed to technological development. Such advancements made it easier for the global community to connect with one another, and it made people aware of pressing humanitarian and environmental issues. Future generations are interested in giving their wealth to support these causes if it means making a difference in the world, even if it leads to less profit.
There are some challenges that come with impact investing, however. First, it is difficult for investors to quantify the impact their assets have in their investment, such as if it is used for improving children’s education in a developing country. Second, there are not as many deals in impact investing compared to those in private equity, real estate and hedge funds. As family offices begin to focus on their legacy, they should seek the help of a diverse group of advisors to
- Identify the best impact investment opportunities;
- Have all family participants be involved in the office’s operations at an early stage; and
- Focus as much energy and time as needed on internal relationships. .
As the next generation takes over wealth management, we will likely see a greater emphasis on impact investing and social responsibility. The Global Wealth Report 2018 predicts that companies might create reporting standards on impact investments, similar to those in place for Corporate Social Responsibility. This will help make impact investment more of the norm,open up more resources and promote connectivity between investors and their communities.