As a long-term investment manager for multi-generational families in a fast changing world, we naturally spend a lot of time thinking about the Next Generation of wealth owners.
When it comes to the needs of this increasingly important audience, we look to Horizons for insight. Horizons is a global community and social enterprise that was created to inspire, educate and connect the Next Generation of private investors and leaders.
Horizons recently published an informative series on impact investing: “Invest like it means something” – written by Dr. Falko Paetzold, Co-Founder of the Next Gen Impact Investing programme of the Initiative for Responsible Investment (IRI), a project at the Harvard Kennedy School, and the Centre for Sustainable Finance and Private Wealth (CSP) at University of Zurich. The series explored the emerging discipline of impact investing, and explained why it can offer far more than moral high-ground in the financial world.
If you would like to access this must-read series in its original form, please visit the Horizons website.
Alternatively, we are pleased to share with you a summary of Dr. Falko Paetzold’s key points:
IMPACT INVESTING I: AUTHOR’S INTRODUCTION
In the introduction to the series, Paetzold surmises that, currently, many millennial members of business families (i.e., “Next Gens”) do net yet hold full control when it comes to family investment and business decisions. But the desire is there, and the tools to do so exist.
Whether Next Gens can pull the unique lever and use their families’ vast power and capital to tackle humanity’s great challenges depends on one thing: Next Gens actively taking the decision to put in the effort to engage in family wealth management, and take the lead in deploying capital through the powerful vehicles which are now available, from microfinance to the voting of publicly listed shares, to impact investing in private markets.
Ultimately, it is up to each individual, to channel their desire and bring about the worldwide changes that they want to see. There is a rapidly growing community of Next Gens that want to do the same.
From a societal perspective, the need for Next Gens to take the lead is imminent, and so is the opportunity. It is the Next Gen’s responsibility and their chance to be the generation that first took up this endeavour seriously.
As the IRI/CSP Next Gen Impact Investing program puts it: Invest like it means something! Know what you own!
IMPACT INVESTING II: INSIDE THE “INTEGRATED NEXT GEN MINDSET”
In this article, Paetzold explains why the moment is right for millennials to get involved in impact investing.
- Impact investing strikes a chord with many Next Gens because it puts a focus on the real-world effect of investments, and encompasses social and environmental sustainability through market mechanisms.
- Compared to older generations, Next Gens often want to engage early with the impact of their investments, and strive towards portfolios that integrate financial with impact objectives.
- The result is an integrated mindset, combining financial, social and environmental returns across all asset classes, as opposed to the ‘traditional’ separated mindset where philanthropic efforts might try to ‘clean up’ some of the problems created through the investment portfolio.
IMPACT INVESTING III: IMPACT INVESTING AS THE “SWISS ARMY KNIFE” TO BUILD FAMILY VALUE
In this article, Paetzold explores how impact investing can have a positive effect on family relations and build important values.
- Impact investing can be highly valuable as a way for families to build family value through societal returns, financial returns, and experiential- and family returns.
- Societal return refers to the important role that capital allocation has on driving and scaling solutions for social and environmental challenges.
- Financial return data for impact investing funds and entire portfolios integrating impact is rare, but exists, and sustainable firms are shown to outperform.
- Experiential- and family returns are often forgotten yet important, as impact investing provides a unique chance to bring families together around shared values and to build investment capabilities amongst members that might otherwise opt out or be left out.
IMPACT INVESTING IV: “TIGHT MARKETS AND NARROW MINDS”, BARRIERS AND HOW THEY ARE OVERCOME
In this instalment, Paetzold analyses impact investing on a practical level by discussing the most common barriers, and how they can be overcome.
- Practical barriers: Challenges include defining a sound strategy, conflicts in the investment agency chain, and questions regarding monitoring and evaluating investment performance. It is very helpful to dig deep into one’s own values and goals, work with specialist advisers, engage openly in networks, and be clear about expectations.
- Family barriers: Differences in the understanding of impact across and within generations can be overcome, and turned into relational capital, by working with specialist advisers, specifically by mandating family members who are interested in the theme to take the lead, and be diligent in questioning assumptions.
IMPACT INVESTING V: LEADING THE WAY
In the final part of this series, Paetzold explains why Next Gens and families are critical for worldwide sustainable development.
- Families can be critical in building the ecosystem as they found, support and advance the institutions that drive impact investing ahead; as, e.g., the founders of the CSP did.
- Based on their unique capabilities, families can be critical in seeding and underwriting innovations, such as the first-time funds that drive new impact investing models ahead or help prove other models.
- Since banks and service firms offer what their clients demand, if that demand is prominent enough, families can substantially push the envelope by demanding impact solutions in their existing relations with banks and intermediaries.
- In particular, because the private wealth community is very secretive, a critical contribution can be to act as a precedent and spread the word about impact investing amongst peers.
About the author: Dr. Falko Paetzold is the Initiator and Managing Director of the Center for Sustainable Finance and Private Wealth (CSP) at University of Zurich and a co-founder of the peer-to-peer Next Gen Impact Investing programme taught jointly at the CSP and the Initiative for Responsible Investment (IRI) at the Harvard Kennedy School. He was also a Post-Doctoral Fellow at the Sustainability Initiative at MIT Sloan School of Management, and is the founder of the global network GreenBuzz that enables several thousand intra-preneurs in different cities to drive sustainability ahead within large firms.