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Impact Investing for Family Funds: Exercise Caution


Wednesday, 17th December 2014 at 11:06 am
Xavier Smerdon, Journalist
The World Economic Forum has cautioned family philanthropic organisations that the decision to move into impact investing is “not one to take lightly.”

Wednesday, 17th December 2014
at 11:06 am
Xavier Smerdon, Journalist


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Impact Investing for Family Funds: Exercise Caution
Wednesday, 17th December 2014 at 11:06 am

The World Economic Forum has cautioned family philanthropic organisations that the decision to move into impact investing is “not one to take lightly.”

The WEF’s new report, Impact Investing: A Primer for Family Offices, suggests that while impact investing could prove a sustainable way to maintain wealth and reflect family values, rushing into a space where expertise is still lacking should be avoided.

“While impact investing is becoming a more frequent topic of discussion among global leaders, asset owners and asset managers, few individuals or institutions have the expertise, tools and understanding of how to put it into practice,” the report said.

“While impact investing may not suit all family offices, for those that choose to become involved, there is a shortage of expertise,tools and frameworks to enable engagement. As a result, despite growing interest, many struggle with the initial steps of engagement.”

The report cites a 2013 Financial Times survey, indicating that family offices already active in impact investing cite intergenerational wealth transfer, contribution to sustainable economy, contribution to community, family values, risk management and succession planning as top motivations for engaging in the space.

According to the report, on average, family offices allocated 17 per cent of their assets under management to impact investments with a broad spectrum of exposure from 1 per cent to 100 per cent for some single family offices in the US, UK and Switzerland.

“The decision for a family office to create an impact investing strategy is not one to take lightly. Alignment among family members on values and needs from the family wealth as well as how the vision for impact investing would fit with the family’s long-term legacy are crucial. For the strategy to be sustainable, the family must be clear on return expectations as well as short-term and long-term capital needs,” the report said.

“Family offices act as responsible stewards of the wealth of high net-worth and ultra-high-net-worth individuals, their families and their heirs. Yet after wealth is generated by one generation of a family, an estimated 60 per cent lose that wealth by the end of second generation, and a staggering 90 per cent by the end of third.

“Family offices can and likely will play a unique and important role in bringing scale to the impact investing sector in the coming years…for those family offices that decide to engage meaningfully with impact investing as the sector matures, the opportunities to create multi-dimensional wealth (financial, societal impact and long-term legacy) will be worthwhile.
“Impact investing enables families to be explicit about their shared values and to reflect them in their investment and wealth management decisions. In addition, an impact investing strategy aligned with family values can help to engage a younger generation in the leadership and management of a family office.”

The report said that one of the most important points for considerations was that while investors chose to enter the impact investing sector for a variety of reasons, successful impact investors were clear upfront about their intended impact as well as the metrics they will use to measure it.

Key points of advice included:

No one-size-fits-all approach
To navigate the complexity of impact investing, investors should define an approach that suits their motivations and unique context.

Avoid analysis paralysis
Philosophical debates about what counts as impact investment versus other types of responsible investment will likely continue as the field matures. The key is to engage in some capacity at first and then course-correct and re-evaluate the strategy over time.

Work with and around challenges
Recognise and acknowledge challenges, determine which ones are show-stoppers and which ones can be creatively addressed. Making this determination will help investors remain action-oriented.

Willingness to shape the opportunity
Similar to other financial innovations, success in impact investing often requires that investors think multiple steps ahead of the current landscape. Some investors choose to take an active role in developing the marketplace. If this is done well, early investors will be well-positioned to benefit from future growth in impact investing activity.


Xavier Smerdon  |  Journalist |  @XavierSmerdon

Xavier Smerdon is a journalist specialising in the Not for Profit sector. He writes breaking and investigative news articles.

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