What is impact investing and which wealth demographic cares?

The segment is growing in importance among your future top clients.
JUL 25, 2014
Advisers who plan to be in business 10 years from now or intend to seek assets from younger investors need to become familiar with the universe of impact investing. Unlike socially responsible investing's focus on screening out certain types of companies such polluters, impact investing proactively backs a project or firm engaged in an effort important to the investor. An investment could include a bond offering for an alternative energy supplier, for example. Impact investing, which typically involves private equity or private debt investments, is a hit with young investors, according to a report published Monday by ImpactAssets. Millennials, those born between 1980 and 2000, seek assimilation between their values and how they spend or invest their money, said Lindsay Norcott, strategic initiatives officer at ImpactAssets. “These are the people who today are looking for purpose in their careers,” Ms. Norcott said. “Once they are the asset owners, financial advisers are going to be the ones helping them find purpose in their investments.” (Don't miss: Adopting ESG factors to improve returns, reduce risk) A survey of high-net-worth Millennials found 45% want to use their wealth to help others and consider social responsibility a factor when investing, the ImpactAssets report said, quoting a May 2013 Spectrem Group study. David Sand, chief investment strategist for Community Capital Management, said Morgan Stanley, UBS and Merrill Lynch each have set up impact investing platforms to be a resource when advisers' clients ask about it. “This kind of institutional support has never happened before,” Mr. Sand said. Firms are providing advisers these resources because clients are increasingly asking advisers for help. Now it's time for advisers to learn more about impact investing so they can have answers and even bring it up in the conversation with clients, he said. Ms. Norcott said just like advisers know their clients' birthdays and the sports their kids play, they should be asking them what matters to them and what their intentions are for their assets. “It's the conversation that goes beyond financial return,” she said. ImpactAssets, which offers a donor-advised fund, also publishes an annual list of 50 investment managers who specialize in impact investing. The list isn't ranked, but all those chosen must have at last $5 million under management and have been around for three or more years, Ms. Norcott said. “A lot of folks read a lot about impact investing but don't realize how much there is out there and that there are fund managers with a track record,” she said. Norman Boone, founder and president of Mosaic Financial Partners, said he’s helped a couple clients make impact investments, including one who backed a clean water project in Africa. Most people interested in this have inherited wealth and they may feel guilty about having it or they are so wealthy they don’t need a high rate of return. He doesn’t have many Millennial clients, he said. “Usually with impact investing you aren’t going to get market returns,” he said. “Part of the bargain is you’re giving up some of the typical returns, but they understand there is a social contribution to the investment.” Mr. Boone said he does expect interest in impact investing to grow. “It’s still a relatively new concept for investors,” he said. The ImpactAssets report quotes one of the nation’s wealthiest young couples, Liesel Pritzker Simmons and Ian Simmons, as wanting to choose investments that align with their values. “It was critical for us in choosing advisers that they understood the social and environmental impacts we were aiming for and would work collaboratively with us to build a portfolio of impact investments,” they said.

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