The idea of blending investment with philanthropic efforts is becoming increasingly talked about by private investors like family offices, but few are embracing the concept and most remain sceptical, says an impact investment specialist.
Lothar Jakab, the co-founder of Steinbeis Consulting for Impact Investment, a German-based group that promotes socially responsible enterprises in sub-Saharan Africa, believes the concept of blending investment with philanthropy and also generating a financial return has some way to go. This is particularly the case in German-speaking countries, he says.
“There are a couple of family offices principals that have embraced the idea and are pushing their investment people to do it, but often the managers are acting as risk averse gatekeepers,” says Jakab.
One of the problems, says Jakab, is that many investment managers have a very binary approach to investing and philanthropy. “They take the view: ‘you either donate, or you invest’, ” he says. “For most of the investment community, the concept of the blended finance model is too hard for them to understand,” adds Jakab.
Peter Brock, head of family office services at EY, says the principal-agent conflict is often at its most acute in areas like impact investing at family offices and family businesses. “The philanthropic vision is usually embedded in the patron’s vision, but often less so among the management of family offices,” he says.
An extensive study a few years ago into the trends of social impact investing in reference to Germany found a number of other reasons why family offices and foundations were apprehensive to commit more to impact investing.
The reasons mentioned in the report included: “fear of a problematic risk-reward relationship, very high administrative expenditures (at all investment phases), a lack of financial products suitable for investors, too few existing social impact investment best practices, a lack of intermediaries able to provide support (particularly expert advisors), and too few specific investment opportunities (i.e. socially motivated organisations)”.
Nevertheless, some family offices are not only embracing blended investment opportunities, but are pathfinders for the investment community in this area. Notable examples are the Norwegian family office, Ferd, and the US family office, Blue Haven Initiative.
“An increasing number of family offices are getting the idea that higher social impact doesn’t necessarily mean lower financial returns,” says Brock. “In fact, some are saying: ‘why should we invest in anything that doesn’t have a positive societal impact’. That attitude will grow in the future, but in the meantime, there needs to be greater awareness of the benefits of the blended investment model.”