The formative years of my career were spent in wealth management; advising high net worth clients and family offices. Working with these clients naturally involves consideration of their broader life goals and wealthy individuals have a long and storied history of donating their wealth towards good causes they believe in. These investors have however, historically, compartmentalised their wealth between ‘for-profit capital’ and their ‘philanthropic capital’ at two opposite ends. This shift in mindset is changing.
Understanding the Impact
Many individuals are altering their approach to these two distinct buckets of capital and blending them into a middle ground - impact investing. We believe this stems from push factors from both ends of the traditional spectrum.
Today’s wealth creators are increasingly entrepreneurs and when they allocate capital, for profit or not, they want to understand the Return on Investment. This generation of ultra-high net worth clients bring the same approach to philanthropy as they do to their business and want to understand more about the impact they are having.
The New Normal
From the “for profit” side of the equation, it should not have escaped anyone’s attention that the asset management industry is increasingly allocating to sustainable and ethical investments and incorporate ESG assessment into much of their decision making process. Many investors are a various points on this journey, having potentially started by excluding certain harmful companies or industries from their portfolios before moving toward portfolios that are pro-actively investing in companies serving a social purpose.
As both ends of the traditional pots of capital change their approach, we find ourselves moving towards a middle ground where todays’ wealth management clients are increasingly considering how they use all of their capital to help create a world they want their children to grow up in. They are positively allocating to areas where the societal and environmental impact of their wealth fits with their own values. This will be the new normal.
The Drivers Behind the Growing Demand for Impact Investing
The drivers behind this should not come as a surprise. Investors simply care more about what their wealth is doing; it is an emotional connection to the implications of their actions. The industry has moved beyond traditional approaches to return and should now consider emotionally adjusted risk adjusted return: am I happy with what I am investing in?
We established Delio to help the wealth industry better connect with this emotional dimension of investing, albeit from a different lens. We saw a need for wealth managers to build propositions to serve the needs of clients to allocate to private investments that they feel better connected to. What we didn't quite appreciate in the beginning was the clear demand for impact investments from private clients and family offices and today, 25% of our revenue now comes from private impact investments and this continues to grow as clients come to understand that supporting causes they believe in and using their wealth for good does not mean a trade-off against financial goals or sacrificing returns the appetite grows.
A Trend that is Not Going Away
The shift in how the wealth management market is responding is clear of how important this is to ultra-high net worth clients and family offices today. What has typically been a slow moving industry is rapidly evolving by building new propositions. This would not be happening if it wasn't for high, sustained, growing client demand for impact investments. This is not a fad; this is a trend that is not going away.
If you would like to discuss how we are working with wealth managers and fund managers operating in the impact investment space, or if you are interested in learning more about the effect we see increasing demand for impact investing having on the wealth market please do get in touch.