One of the primary applications of wealth intelligence is to help organizations understand an individual’s complete wealth profile as more often, the philanthropic, investing, and spending habits of wealthy individuals are interrelated. The recent rise of HNW impact investing is indicative of this trend and showcases how the wealthy make considerations of the heart and conscience when investing their money.
HNW impact investing is growing rapidly, with the Global Impact Investing Network reporting that assets under management (AUM) in impact-oriented causes jumped from $114B to $502B from 2014 to 2018. While this number still represents a very small share of total invested assets globally, there is a clear and growing desire for investment opportunities in this space among the wealthy. Traditional asset management professionals recognize this demand, with investment managers as prominent as Larry Fink of Black Rock acknowledging that there is an increasing public demand for companies to serve a social purpose.
While there is no universally agreed upon definition of HNW impact investing, there are a number of related trends that are often considered as falling within the realm of this practice. Considered broadly, impact investments are made to generate both positive change in specific social or environmental areas, as well as positive financial return.
HNW impact investing is still a maturing field and is largely dominated by foundations. Though there is some involvement from Limited Partners (LPs), the field currently lacks the full range of packaged solutions and financial instruments available to brokers and fund managers to offer to individual investors.
The rise in HNW impact investing is driven in part by a generational change in investment philosophy. A wide range of practitioners and observers have pointed out that younger investors are more interested in asset management strategies that align with their social values. These investors are affecting older investors and impacting corporate giving, which has grown as corporate social responsibility programs become more important.
HNW IMPACT INVESTING VENTURES
To help illustrate the growing significance and rapidly changing nature of this field, we took a look at the path of Triangle Impact Partners (TIP) – a new venture dedicated to engaging wealthy investors with a passion for social change.
TIP grew from a desire to do more than was possible with Donor Advised Funds (DAFs) and other similarly constructed funds, with the goal of providing an opportunity to leverage more patient capital to invest directly in social ventures. TIP’s mission is to provide a platform for investment with social ventures that have been vetted for both social impact and financial return. The funds on these platforms are generally smaller and typically comprise organizations that are engaged in efforts to achieve the UN sustainable development goals.
The plan for the platform is to provide a wide range of accessible funds that offer many of the benefits of DAFs, while also providing the variety and depth of other solutions (such as community investment funds). TIP is working to build partnerships with all the parties involved – from the direct impact organizations to investment managers. Their long-term roadmap involves engaging more investment advisors to create and streamline the process that would open impact fund access to a wider range of investors.
Currently, TIP is focusing on partnerships with social ventures to help them find ways to scale opportunities. As these relationships grow, additional intermediaries who own the conversations about potential investments will also be engaged.
NAVIGATING UNKNOWN RETURNS
While most wealthy investors have a desire for HNW impact investing, they currently lack many options that present them with a way to explore the space while maintaining an overall portfolio balance that fits with their long-term planning. As more opportunities become available, additional investors can enter the impact field and firms can learn more about how best to serve their needs.
A CALL FOR TRANSPARENCY
Especially in this growing space, transparency into impact and proof of financial clarity are essential for building investor trust. TIP sees the value in an impact reporting platform that reveals both returns as well as the tangible changes being driven by investments. Investors in a firm pursuing, for example, changes in local food chains will get updates on both returns and homes or farms serviced with that solution. Balancing returns with impact is key to engaging HNW impact investors for long-term sustainability, and organizations may set different thresholds for each.
While there are many questions about the details of how to set up, manage, and scale HNW impact investing opportunities, one thing is certain – impact investing is all but certain to expand. What remains to be seen is how the field will develop over the next decade. With firms like Triangle Impact Partners addressing the growing demand from investors to find opportunities that influence social change while gaining a reasonable return on investment, we will continue to see rapid growth in this space, leading to far more opportunities than have existed in the past.