The role of HNWIs and family offices in impact investing

They don't contribute as much as other institutional investors, but they play an important part

The role of HNWIs and family offices in impact investing

Perhaps due to the increasingly heavy toll of issues like climate change and inadequate gun control on society, interest in responsible investment is rising. But as cost perceptions continue to hold smaller investors back, it falls on larger players to invest for good. That doesn’t just include institutions like pension funds and foundations; even high-net-worth individuals (HNWIs) and family offices are getting in on the act.

“More than 90% of HNWIs globally, particularly those under 40, believe that driving social impact is important,” said Pitchbook in a new report. “Many philanthropically motivated, wealthy investors choose to act on this conviction through their investment choices, and asset managers have increasingly adopted impact asset offerings to serve this demand.”

Citing a 2017 report by UBS, the firm said 28.3% of family offices utilized impact investing as a strategy; furthermore, 40% of investors polled expected to step up their impact/ESG investment commitments in 2018. Such investments tended to be allocated according to the impact theme that a capital provider wished to focus on.

Unlike foundations or other institutional investors with responsible mandates, HNWIs can be secretive about their investment preferences because they desire privacy. That means tapping them to raise funds can be difficult. Family offices also don’t share the same non-financial motivations that some institutions have, so asset managers that are new in the ethical investing space may have a hard time getting HNWIs on board.

“[But] unlike both foundations and [development finance institutions], LPs in this category can allocate capital to funds on a faster timeline, as they have fewer bureaucratic limitations,” the report said. “[And] the smaller check sizes most family offices or HNWIs target might make them ideal prospects for emerging managers raising smaller funds.”


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