Impact Investing for Family Funds

Impact investing has become a familiar topic among financial professionals around the globe. Having reached well over $700 billion globally and rising steadily, investors across the public and private sectors are considering how to integrate impact investment into their overall strategy. Particularly in the wake of the market tumult following the COVID-19 pandemic, financiers are also coming to understand the importance of making positive impacts with their investments in order to preserve the regularity and reliability of the global financial environment.

While it may seem like impact investing is primarily reserved for those firms and funds with extensive client bases, research indicates a strikingly different conclusion. As shown in the Global Impact Investing Network’s 2020 annual report, 74% of reported impact investments come from small and medium-sized investors, who have indicated that they are seeking these routes of investment due both to their personal commitment to climate responsibility as well as by the demands of their clients who are seeing positive results environmentally and financially.

Further, experts have argued that family offices and private individual investors (particularly from ultra-high net worth (UHNW) sources) are the true pioneers and drivers of impact investment. This article will outline how and why these sources of impact investing are seen as the true backbone of the movement towards a robust impact investment market. 

Benefits of Impact Investing Through Family Funds

Flexibility

When individual investors and family funds invest, experts have found that they are willing to take on the market volatility in a way that other investors cannot (or will not). Of course, UHNW and family offices are still concerned about keeping profits in line with those firms using alternative strategies.

However, as Ron Kaplan explains, they have “a broader prism through which they evaluate the viability of an investment.” Further, family offices are generally more comfortable investing long-term, even extending expectations across several decades. With a focus on wealth preservation, rather than annual rates of return, such funds (can go further) than traditional methods in the size and efficacy of their investments.  

Active Roles In Investment Lead to Bigger Impacts

Family offices are more likely to take an active role in the decision-making process pertaining to the destination of their investments. Having such an active hand naturally incentivizes such firms to closely monitor where and when the investments are assigned which often results in more nuanced activity and a stronger rate of return. They also have a greater ability to tackle more nuanced issues than the existing markets (or even governments) have not yet addressed. Targeting smaller projects with an active hand and a unified goal can bring a unique level of individualized impact, and in turn, strengthen the opportunity for strong returns. 

Current Projects

Treehouse Investments LLC

Treehouse Investments is a boutique decentralized infrastructure with a firm dedication to addressing climate change and is a family business founded by a family in Puerto Rico. They focus on decentralized solutions as they believe them the most resilient. Their activities center around the core philosophy that the private sector is essential to addressing climate change, and doing so in a way that is respectful of communities and the broader environment. Treehouse Investments targets direct investments in both publicly traded and private entities.

MacArthur Foundation

The John D. and Catherine T. MacArthur Foundation support creative people, effective institutions, and influential networks building a more just, verdant, and peaceful world. Their Foundation uses two methods for the ongoing management of its investment assets: an investment portfolio designed to earn a financial return sufficient to support a substantial, stable level of grantmaking and other activity, and an impact investments portfolio dedicated to the advancement of the Foundation’s program and philanthropic purposes. 

Silicon Valley Community Foundation

The SVCF is a regionally focused public charity that has demonstrated strong progress in its mission toward “strengthening the common good”. The SVCF pursues many avenues of impact, and its impact investment portfolio includes projects in the fishing industries, affordable housing initiatives, and sustainable energy projects. Their community impact includes local grants, strategic partnerships, public policy, and more. They did considerable work supporting the community throughout the pandemic, including improving access to public assistance programs and taking on food supply challenges.

Conclusion

In conclusion, individual investors and family funds have an important role to play in the future of impact investing. They can be more flexible and personalized than other investment strategies, and their current successes are a promising indicator of a wider movement towards sustainable investing.