Catalyzing wealth for change

What is the role of high-net-worth (HNW) families in impact investment? What’s unique about their approaches? Also, what are the main drivers motivating wealth owners to engage in impact investing?

These questions are addressed during this webinar – a dialogue between Professor Vanina Farber, elea Chair of Social Innovation, and Dr Julia Balandina Jaquier, trusted adviser to families, author and educator. It appeared live on Wednesday, 3^rd June at 11am CEST.

IMD research fellow, Dr Marta Widz, also contributing to the conversation paints a picture of two emerging trends in family investment patterns:

“The first trend is growing interest among families of wealth to move from traditional investing through their family offices towards direct investments,” says Dr Marta Widz. “Families with accumulated liquidity have a growing desire to move from allocators to acquirers.”

“A second trend I observe is the willingness among families of wealth to move away from the scattered investment efforts of investment vehicles such as family offices, foundations and individual investments of family members.

“They wish to align investments and form a family investment ecosystem with one overarching purpose-driven investment philosophy.

“That purpose plays a crucial role in the growing desire of families of wealth to embrace family reputation, legacy, wealth-creation and wealth-preservation expertise, as well as to foster transgenerational entrepreneurship,” she explains.

Insights into the impact investment approaches of families of wealth

With more than 20 years’ experience in impact finance, Dr Balandina Jaquier has advised some of the leading global families, their family offices and foundations. She is the founder of JBJ Consult and of KATALYST, as well as author of the book “Catalyzing Wealth for Change: Guide to Impact Investing”.

Dr Jaquier reminds listeners that out of $4 trillion needed per year to fulfil the Sustainable Development Goals (SDGs), roughly $2.5 trillion is missing.

A list of potential sources cannot just comprise governments and philanthropic resources, she said, continuing:

“We see a huge concentration of wealth. $158 trillion is owned by the wealthiest 1% of the population, representing 44% of overall wealth. Close to 70% of all enterprises are family-owned representing, and in some regions up to 90% of GDPs.”

“Clearly, the capital and the power to act are in the hands of private individuals.”

Dr Balandina Jaquier explains some of the unique attributes of private wealth owners who she believes are well-positioned to invest with impact as they tend to be longer-term oriented, and have access to different types of capital pools, including philanthropic, R&D and traditional investing capital pools.

“This blending of instruments with different risk-returns profiles is often required to help develop systemic innovations.”

Differences between families of wealth and institutions when investing

“Families have been traditionally values-driven in managing their family businesses, and, unlike institutional investors, who operate under the stricter notion of fiduciary duty, private wealth owners are much more flexible in reflecting these values in their investment strategies,” says Dr Balandina Jaquier

“It is easier for asset owners to take pioneer risks or accept lower returns to achieve a particular type of impact,” says Dr Balandina Jaquier, “and business families can also add strategic value to early stage businesses that often require a lot of non-financial support.”

Dr Balandina Jaquier gives concrete examples of the catalytic role of families in building the field of impact investing, who are also profiled in her book.

Among them is Pierre Omidyar, founder of eBay, who also structured the Omidyar Network as a philanthropic investment firm. It uses a broad and flexible range of tools including grants, market-rate investments and concessionary finance, to address the root causes of societal challenges.

Dr Balandina Jaquier describes the key drivers that underpin families’ motivations to fund impactful solutions, which can be divided into philanthropic, financial and personal or strategic motivations.

She also explains how families choose to place their impact investment portfolios within different parts of the family ecosystem: family offices, the endowments or programmatic side of their foundations, or family businesses.

How approaches to structuring impact investment activities vary

Often, families start with a “carve out”, usually between five and ten percent of their wealth and manage it separately from the rest of the investment portfolio.

“Once satisfied with outcomes, they feel more comfortable with integrating impact investing into their broader portfolio, adding impact-generating investment across different asset classes.

Approaches to investment may vary depending on the particular challenges faced by the family of wealth.

Dr Balandina Jaquier explains how these could include misconceptions about the nature of impact investing, resistance from advisers or trustees and family dynamics. Then there’s the complexity and effort associated with the development and indeed implementation of an impact investment program.

But what helps address these challenges?

“Education is key,” says Dr Balandina Jaquier. She recommends starting by educating family members, their advisers and boards.

When speaking to conservatives within the families, she advises against the temptation to focus too much on the impact goals and being overly emotional, as this approach is less likely to yield positive results, placing impact investing in the category of philanthropy.

“Framing it in ‘financial language’ may help you progress. Explain that integrating sustainability and impact investing helps reduce investment risks, takes advantage of new opportunities, and adjusts the family’s investment strategies to the rapidly changing business reality, while bringing significant strategic benefits to the family.”

What’s the role of female wealth owners in impact investing?

Dr Balandina Jaquier gives the examples of nine female impact investors who have significantly contributed to developing the impact investment field.

She explains how women are still significantly underrepresented in the investment industry and among impact investors, in spite of their interest in this approach. However, she is hopeful their importance will grow tremendously in the future, adding:

“In the next two decades, a wealth transfer of an estimated $60 trillion will take place, and 70% of that amount will be controlled by women.”

In this sense, they represent a key source of mission-aligned, smart investment capital for the industry.

To find out more about upcoming webinars from the elea Center for Social Innovation, please visit the Center’s page here.

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