Investment

The ever-growing popularity of impact investing and how family offices are responding

Ethical issues with wealth management run deeper than mixed performance and hidden costs, according to Amy Clarke, co-founder of Tribe Impact Capital, the UK’s first impact wealth manager.

She says far too many advisers have captured the investment agenda from their clients and not given individuals enough opportunity to tackle sustainable issues through their investments. 

Money is an important fuel for creating change. It facilitates achieving a living legacy

Evidence is also growing that sustainable impact investing can match, or outperform, the market, giving them even less reason to ignore the sector. 

Tribe’s medium-risk fund has beaten its mainstream peers since its inception, nearly three years ago.  Family-backed impact investor Kapor Capital is a top-quartile performer. Family offices are making it clear they also expect performances from impact which match the market.

In November, three years after inception, Clarke is planning to spread Tribe’s message to wealthy investors. She makes it perfectly clear that the swathes of the advisory world need a green upgrade, given the looming risks to society from climate change.

“If you go in to speak to your adviser, and you declare your interest in sustainability, some advisers will give you a form to fill in and ask you what you want to avoid: tobacco, armaments, alcohol.  

“They put your money in one of their model portfolios,which may still contain an ETF or funds which may could have underlying exposure to the very companies you want to avoid. 

They don’t ask what you really care about in terms of a sustainable investment strategy, such as pressing issues like the climate emergency or rising levels of inequality. Often, you get a very reactive strategy rather than a proactive strategy focusing on the change you do want to create.”

She adds: “They may say they don’t want to harm your financial performance, and that they can give you a little pot of money at the end of the year, if you want to ‘do good’.  But you often become the sum total of your risk/return profile rather than a true manifestation of who you really are and what you really care about”.

Flows of funds can raise, or lower, the cost of capital, making every convert to sustainability count: “Money is an important fuel for creating change. It facilitates achieving a living legacy.” 

Clarke has found the younger generation can develop a guilt complex over not earning the money they have inherited. Or they can be skilled in technology, rather than finance.

“We explain money is part of a tool kit for change. For social and environmental action and improvement. We often find when this is explained and evidenced we get high levels of involvement.” 

Clarke used to carry out sustainable research at PwC and led social responsibility for Microsoft in the UK. She started Tribe with James Lawson, founder of wealth adviser Ledbury Research, now owned by Wealth-X. 

Tribe is affiliated to pukka wealth adviser LGT Vestra, whose chief David Scott doubles up as Tribe chairman.  The Liechtenstein royal family, which owns LGT, is a firm supporter of philanthropic and social ventures, making Tribe its latest iteration.

Good performance really matters, says Clarke. She has just hired Fred Kooij, a former high yield specialist at Blue Bay Asset Management, as chief investment officer, to join her team. Several of her colleagues once worked for established firms like JP Morgan and Schroders.

After a flat fee of 1%, Tribe’s medium-risk fund has produced 17.9%, beating returns from the ARC steady growth universe by 1.2 percentage points, between November 2016 and this June.

Tribe has started to back sustainable ventures, a frequent feature of the impact world. The comprise participation in a funding round for Bulb, the renewable energy supplier, and School Space, which finds occupiers for educational facilities, when they are not in use. 

Contrary to received wisdom, impact investors are as concerned with performance, as ethics. In a survey published by the Global Impact Investing Network in June, 66% of respondents expect a market return from their impact investments.

A technology venture called Ethic has refined the asset allocation approach by putting together platforms designed to create equity portfolios that track sustainable benchmarks without sacrificing performance.  

The business is advised by Justin Rockefeller, global director at Addepor, which has developed a reporting platform for family offices. Ethic has just raised new funding from several technology investors including Kapor Capital, an investor in impact opportunities since 2011.

Kapor Capital is led by Mitchell Kapor, founder of the computer world’s Lotus system. Over eight years, its tech-driven impact investments have achieved an internal rate of return of 29%, against the 26.5% top quartile performance from mainstream venture capital, according to data provider Pitchbook.

Liesel Pritzker Simmons and her husband set up a family office called Blue Haven Initiative in 2012 to maximise a social and environmental impact. But Blue Haven makes it crystal clear it also expects a market rate of return.

Impact has a better chance of performing well than in the past because of changing share buying habits in the financial community. Institutions are increasingly prepared to put money behind sustainable opportunities.

Ethic co-founder Johny Mair says: “More and more capital is moving into companies that are sustainable, driving impact creating change and solving real-world problems.” Venture capital is fizzing – thanks to the weight of money wanting to back tech-driven businesses.

Clarke says: “The City of London has really started to change over the last two years. There is a realisation of the extreme risks which result from climate change, for example.”

Clarke is pleased to see the creation of climate lobby groups. She is a big fan of corporate lobby group Climate Action 100+ backed by institutions worth $33 trillion, who never duck a challenge. It has battled US oil giant Exxon and persuaded executives at Shell to benchmark their pay on sustainable benchmarks. 

Impact investing can’t rival the big green guns, but it is growing fast. According to a June survey produced by GIIN, investors backing impact four years ago have lifted their involvement by an annualised 17%. Its lead supporters include the Rockefeller Foundation, Ford Foundation, Omidyar Network and a string of corporates. GIIN says more than $500 billion now backs impact.

“As reports from the IPCC and others clearly state, we don’t have much time,” says Clarke. “In an ecological sense, you could argue we have no time. To deal with the crisis, we need co-operation and collaboration in finance”.

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