Family offices raise private equity impact investments

A large portion of capital managed by fund managers making private equity impact investments is raised from family offices and high net worth individuals (HNWIs), new research finds.

Up to 37% versus only 5% of the capital managed by private debt focused fund managers came from family offices and HNWIs, according to the seventh annual Impact Investor Survey 2017. The Global Impact Investing Network (GIIN) surveyed the views of 209 respondents who together managed more than $114 billion in impact investing assets.

Abhilash Mudaliar, GIIN research director, said his team asked an additional set of questions to 135 fund manager survey respondents. This group managed more than $42 billion in impact investing assets. Of this 18% was raised from family offices and HNWIs, second only to the volume raised from pension funds and insurance companies.

Further, more than 70% of fund managers reported having raised at least some capital from family offices/HNWIs, more than from any other organisation.

Similarly, 26% of the capital managed by fund managers making investments in developed markets came from family offices and HNWIs, versus 12% of the capital managed by emerging market focused fund managers.

“We also asked fund managers about the interest they are seeing for impact investment from family offices they speak to,” Mudaliar told CampdenFB.

“Nearly 80% of fund managers said that most family offices they speak to are either already allocating capital to impact investments or developing an impact investing strategy.

“This interest in impact investment among FOs is also reflected in fund mangers' perceptions of competition in fundraising from them, with 19% saying they face a lot of competition in raising capital from family offices and 40% saying they face some competition.”

Mudaliar said his researchers were increasingly hearing from wealth managers and private banks that they are seeing a rapidly growing demand for impact investments and that they are scrambling to figure out the right types of products to offer these clients.

“They are adapting product to support this demand, as there is a fear that they will lose clients to those who are playing a leadership role in impact investing.

“We think family offices will continue to play a significant role in the market. There is still a lot of untapped potential, as there are many family offices who are not yet involved in the space. While some are playing a pioneering role in the market, many are beginning to dip their toes in the water and wrap their heads around what impact investing is and how to do it. Some of the growing interest can be attributed to an increasing consciousness of the role their investment capital can play in major social change or environmental preservation. Another factor is the growing involvement of younger family members who are getting more involved in the decision-making.”

Investors believed major asset managers and companies could professionalise the sector. Two-thirds of respondents aim for risk-adjusted, market rates of return, but the study found that many also believe investments looking for below-market-rates are important too.

Almost all said their investments had made as much or more impact than expected and 91% of investments had done as well as or better than expected financially.

This year respondents are looking to increase their combined investment tally by 17% over 2016.