The world of high finance and ultra-high-net-worth money management are seldom spoken in conjunction with ways in which we can make our world a better place to live. Much more frequently, in fact, the two topics require a full-stop and pivot in conversation before one is transitioned to the other.
This industry is projected to double in size from $22 billion to an estimated $44 billion
Philanthropy, charity, tithing. Income generation, wealth accumulation, return on investment. Two different worlds. The first taxonomy intimates using our wealth to do good works in the world. The second, leveraging our existing assets to create more income and wealth for us and our families; certainly not a bad thing. But the connotative bifurcation is increasingly not the reality on the ground.
The term 'Impact Investing' was coined in 2007 during a working session at the Rockefeller Foundation Bellagio Center in Northern Italy. Succinctly, as defined by the Global Investment Impact Network (GIIN), impact investing is the practice of making investments into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. In other words, it’s the practice that allows us to compress charity and wealth creation into one broad, magnificent topic.
The traditional approach among private wealth and charitable foundations alike was similar for years. Operations would be broken down into two primary functions; creating wealth/generating income and philanthropic giving. More directly, the second was driven by the success of the first.
What this translated to, in the case of private, non-operating foundations for example, was that the overwhelming majority of assets (95% in this case) would be managed without concern for where the capital was placed. The recipients of the the small minority (5% for these foundations) of assets would then be diligently assessed on their ability to administer and affect positive results.
Family wealth functions similarly. Although wealthy private clients may give more as a percentage in charitable contributions, this charity will still exist as a fraction of their aggregate assets.
In both cases the philanthropic giving is consistent with the charitable intent, or mission of the family or foundation but the corpus of the annual investments may actually be contributing to the detriment of this same exact mission.
The extreme example for illustrative purposes might be making grants or donations to the World Wildlife Fund while simultaneously investing in extractive companies that systematically harm wildlife biodiversity and habitat restoration.
Although money managers are becoming more aware of the many public and private vehicles available that can leverage the other 95% of private and foundation assets, the power to make real change lies with the owners of this wealth.
Revisit investment policy statements (IPS) to ensure that the potential risks, long term reward potential and overall mission are being fully incorporated into your private or foundation portfolio.
Wealth accumulation and philanthropic intent are not mutually exclusive. Altruistic investments do not necessitate concessionary returns and well-timed, profitable holding do not translate to diluted impact.
Let’s combine these two conversations. We can then spend more time at the snack table.
Article By John Stroud