A quarter of family offices are already engaged in impact investing, a sector with assets worth $502 billion in 2019, roughly double the year before, but how can families really make a positive impact and return?
With family next-gens responding to impact over traditional philanthropy and 81% of impact investments exceeding yield expectations, the sector has firmly gone mainstream. However, 33% of families surveyed for the Campden Wealth Global Family Office Report 2019 said there was a lack of well-known companies with short track records in the impact space, when asked about their barriers to impact investing. A quarter (24%) still worried about having lower returns and 22% said it was hard to know what kind of impact these investments had. Some 14% said there were not enough investing opportunities focused on the values they cared about the most.
Shelly Hod Moyal is a founding partner and co-chief executive of iAngels, a tech investment family office and platform based in Tel Aviv. The international finance and investment expert tells CampdenFB who the leading impact investors are, what they want and how to go about getting it.
What trends are you seeing among global business families in the impact investing space?
We are seeing long-term thinking especially with the younger generation, who are expected to live longer and through the aftermath of climate change. Organisations are going local before going global and incorporating community building. We see a shift in focus from short term generic transactional services to value-building personalised long-term relationships.
In business models, there is an influx of new, more efficient, less expensive ways to promote inclusion, diversity, democratisation and access across services. Look, for example, at the sharing economy: ride sharing, transportation, rentals and blockchain all allow more population participation.
Investors are looking not only for the right investment, but also for the right entrepreneurs—ones with a focus on culture and authenticity. They want to ensure their partners walk the walk, they don’t just talk the talk.
What is motivating family principals to take an interest in impact investing?
As the problems we face grow larger, more complex and more global, the older generations of wealth and resources understand that philanthropy can only take the world so far and that you will have a far greater impact on any cause by wrapping a profitable business model around it. Though they have passed down this notion to their children, the next generation has chosen to translate it into practice differently. The younger generation cares that their investments make a positive impact. According to a recent Morgan Stanley study, 90% of millennials tailor their investments to their impact goals. They realise that it is possible to do well by doing good and strive to accomplish both.
How can families find worthy impact investments?
Investments begin with strategy. It is very possible to invest in impact across asset classes (bonds, stocks, private, venture, real estate) and for your entire portfolio to be 100% impact. As with any investment, I would start with the level of involvement you, as the investor, seek: Are you looking to invest directly or through a manager? What is your risk appetite? Your time horizon? And perhaps most importantly, what is the impact you want to make?
Deciding what kind of impact you want to make starts with values and areas of interest. As a VC, our impact strategy is around venture. We target venture opportunities with high correlation between impact and profit. More recently, this has taken us to areas such as environmental technology, renewable energy and healthcare. In the last three years, we have made eight environmental investments and seven healthcare investments.
In addition, we are passionate about promoting diversity and inclusion, specifically empowering women, which is an integral part of our strategic legacy. We have invested in 10 women-led businesses and had three women-led exits. Obtaining more funding for women and setting an example to move the dial on gender inequality certainly has an impact. One recent example is Clear Genetics, a software that automates and scales genetic testing services, designed to guide patients throughout the genetic testing process. iAngels was the lead investor, and the only VC, that invested in Clear Genetics’ $2.5 million seed round, immediately following their graduation from Y Combinator. Only two years later, Clear Genetics was acquired by Invitae, a US publicly-traded company, for $50M.
How would you rate the professional expertise available to families interested in impact investing?
As in many other fields, there are world class professionals, emerging professionals and those less so. Overall, this is a new area with vagueness around standards and requirements. There is a spectrum of investments, spanning from true philanthropy to pure capital gains. People have different expectations with regards to measurement and different goals which they consider worthy of being considered impact. It’s all a matter of the investor’s prioritisation and whether they are prioritising sharp ratio (returns) or a certain impact.
How can families measure the impact and returns on their investments?
If you are investing with impact managers, they will often measure it for you. If you are investing directly with entrepreneurs, then you can work with them to define impact KPIs just as you do for traditional business metrics. Make sure to also define time periods in which you review them.
Can billionaire impact investing families save the world?
They can surely have an incredible impact, but obviously they don’t do it alone. They have a critical role in finding the solutions/technologies that will save (or better) the world, but there are many other factors including the entrepreneurial talent, global population, governments worldwide and powerful corporations embracing sustainability and taking responsibility for their share.
My philosophy is: before trying to fix the world, try to fix your room. Once you try fixing your own room, you realise how difficult it is to live up to your own values—to recycle, cause less damage, endorse and support people who do good, donate and give back to the community. This in itself is a meaningful way of living. If everyone takes part, we will all be in a better place.
Another notion to consider is what qualifies impact. One person’s impact may be considered by another as a disaster. Take for example the trend of genetic and synthetic biology. One party may look at this innovation as one of the most important breakthroughs in science, allowing us to cure cancer, rid the world of mutated genes and bring healthier, more intelligent children into the world. Others have severe ethical concerns with such innovation and/or consider these innovations to be at the expense of individual privacy, individual choice or worse; having second order consequences that may change the balance between the human species and make the gap between the privileged and those less fortunate larger than ever.
Imagine that any family with the monetary means can improve their offspring’s intelligence, physical abilities and access to healthcare. This can have a detrimental effect on equality of opportunities, leaving those who don’t have monetary means far behind. The same can be said of genetically modified foods or vaccines, which on the one hand, have the ability to save us from many diseases, but on the other hand, are seen by some as severely dangerous.
In another field, we can look at autonomous vehicles. Does the benefit of overall safety outweigh the many people who might get killed while testing out the technology? And what about the massive unemployment that will be triggered by self-driving cars? When considering each investment, the second and third order consequences need to be considered. Ideally the positive impact overcomes the negative, providing the opportunity for a net positive impact investment but as you can see it’s not always black and white.