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Millennials favour impact investing, real assets

By Michael Finnigan

The number of Millennials that own or employ socially responsible investments is significantly higher than in any other age group, according to a study that explores family dynamics in wealthy families.

US Trusts’ Insights on Wealth and Worth 2014 found that 63% of Millennials, those born between 1980 and 2000, own or are interested in socially responsible investments compared with 40% of Generation X.  

Generation X is defined as people born between 1960 and 1980. 

The reason for the younger generation’s generosity is a forthcoming wealth transfer and shift in mentalities, according to Michael Sidgmore, founder of NextGenEngage, an organisation that connects next generation investors and educates them on impact investing. 

“Over the next two decades there is a pending $41 trillion (€30 trillion) wealth transfer that has got Millennials thinking about the future,” he said.

“Unlike the other generations, Millennials do not consider philanthropy and investment mutually exclusive, which you can see in the rise of crowd funding sites and peer-to-peer networks.”

Traditionally, impact investment is not considered profit spinning but the survey shows that opinions are changing. Six out of ten (60%) respondents agreed that it is possible to invest achieving market rate returns through impact investment.

“The younger generation doesn’t necessarily view impact investing as having a better financial return than traditional financial instruments,” Sidgmore said, “but in some cases they are more likely to sacrifice financial return for social return. 

Impact investment is a continuum, according to Sidgmore, that moves all the way from pure philanthropy, where you get 100% social return and 0% financial return, to financial first returns where you get market rate returns but with measurable social impact.

The study also found 81% millennials either own or are interested in owning tangible assets such as land, real estate and timber, and are more interested than any other age group in using private equity and hedging strategies.

Sidgmore said that the interest in tangible assets stems from the 2008 credit crisis that saw the collapse of complex financial instruments that were structured and sold to investors that probably didn’t understand the underlying assets.

“Millennials want trust, but they need to know what something is and therefore they need transparency. Financial markets are very opaque. If it isn’t transparent they are going to shy away,” he said.

Sidgmore said this is why there has been an increase in peer-to-peer lending sites like Zopa and Lending Club that allow investors to see the person on the other side of the trade.

The US Trust report surveyed 680 US high net worth individuals with at least $3 million in investable assets.