HNW investors are increasingly investing in vehicles that drive social impact and more growth is predicted in this area among millennials. Mary Humphreys explains the idea behind impact investing and why it is becoming so popular.
What is impact investing?
Impact investing is an industry growing at a rapid pace, driven by investors determined to generate environmental and social impact alongside financial returns.
Investors are increasingly looking for opportunities in bonds and other vehicles investing directly into social impact projects. Goldman Sachs, UBS Inc, JP Morgan Chase & Co and Morgan Stanley are all developing impact investing platforms for their advisors to use when clients request a portfolio geared towards a cause which is close to their heart.
Who's leading the social impact trend?
There is an increasing demand for impact investing among high net worth individuals (HNWIs) who are interested in making a positive impact with their wealth. HNW women and millennials in particular have a substantial representation in this market. Women with significant wealth are a rapidly growing set. Millennials are anticipated to be beneficiaries of multi-trillion dollar wealth transfers in the next generation and it is predicted that a great deal of this wealth will be invested in environmental charities.
Currently, major financial institutions and other institutional investors account for the majority of impact investments. However family offices, retail investors and charitable foundations are jumping on the bandwagon and now represent approximately a quarter of the market.
How social impact benefits investors
In terms of the returns, impact investing is traditionally perceived as less liquid, therefore tougher to exit, while carrying higher risk overall. Recent research, however, proves this to be inaccurate. Emerging data demonstrates profitable returns with the same holding periods as conventional private equity (PE) and venture capital investments. Clearly, social enterprises with strong business models do not require additional holding periods to generate value, making them an attractive proposition for shareholders.
Impact investing is gaining real momentum at the moment and a lot of our clients are increasingly interested in structuring part of their wealth into these areas. We are seeing more and more families who want to give something back to society and we have been working with them to put suitable plans into operation.
As we look to the future, the team at Equiom expects continued growth in the area of impact investing and we intend to keep a close eye on developments in this exciting market.
For more information on impact investing contact Mary Humphreys.
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