Impact investments and family offices – some thoughts

Impact investing is catching on, or at least that’s what an increasing number of proponents say. But does it have the legs to really attract serious investors, or will it always be a niche asset class for a few very rich and idealistic families?

Impact investment involves investing in companies, organisations, and funds with the intention to generate positive social and environmental impact, but also financial returns. Approximately $60 billion found its way into impact investing globally in 2015, says the Global Impact Investing Network. OK, that’s not a great deal of money, compared with the trillions invested in sustainable and renewable-linked assets, but JP Morgan reckons impact investing will reach $1 trillion of assets under management by 2020. Wishful thinking? Some family offices don’t think so.

“Institutionalisation and professionalisation of the discipline (impact investing) are been driven primarily by a number of extremely wealthy families,” says Matthew Weatherley-White, the managing director and co-founder of the US-based investment group, The Caprock Group. He says his firm is currently working with two family offices with the goal of having their entire portfolio geared towards impact investment outcomes within a few years.

Perhaps the best-known example of this commitment among family offices is the Blue Haven Initiative. The family office of Liesel Pritzker Simmons and her husband Ian Simmons, Blue Haven is  completely committed to impact investing. Indeed, Caprock has worked with Blue Haven to create a portfolio of impact investments.

“Families wanting to incorporate a moral ethic into their investment strategy are doing this with impact investing,” says Weatherly-White. “Families are saying: ‘We have our values as a family and we like to invest in ethical businesses that aren’t exploiting their workers in the supply chain, that aren’t contributing to environmental degradation, and that aren’t involved in questionable accounting practices, and here’s a way to incorporate our family values into our portfolio’.”

The World Economic Forum, famous for hosting the annual Davos conference, produced some research into impact investing and family offices in December 2014. The group reckons that family offices will lead the charge into the asset class as they have done before with investments like hedge funds and private equity.

But some family offices have yet to be convinced. Here’s what one told Family Capital about the asset class. “It might inspire millennials (18 to 34 year-olds) and a few others while they’re drinking their mojito and partying in some beach club on the Mediterranean, or Cape Cod, but I’m yet to be convinced that it delivers the returns of many other asset classes. And are these types of investment really making a social difference?”

One thing that might be holding back greater acceptance of the asset class is the lack of clarity over how to measure the social and environmental benefits of impact investing. The process is easy, but the results side of impact investing still needs more clarity, say critics. Although the UN has developed a group of sustainable development goals, with many targets within them, the ease of adapting these into portfolio construction might need more refinement.

And Weatherly-White admits that impact investing sometimes does have an image problem – “an asset class popular among wives and millennials ” as it is portrayed in the popular perception.

But proponents of the asset class reckons that’s wrong. Indeed, some say impact investing will be at the heart of the capital markets sooner than many expect. “It’s an outlier for the future of the capital markets,” says Weatherly-White. “And those investors making the commitment now are leading the revolution.”