Family offices and Social Impact.

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Sometimes you get the key insights from the most obscure sources. Here is the statement that concludes an article posted on Linked in by Tony “Property investment” Miller who runs a Mayfair property boutique called Huriya (and is a member of the Pension Play Pen).

This is how the article starts

Some of the world’s richest people may take their money away from private bankers and wealth managers unless they offer more impact investments and philanthropy deals, according to family offices and foundations.

This is how the article ends

Yet the issue is a complex one for relationship managers, whose salaries and bonuses are often linked to the size of a client’s portfolio and its return on investment. While impact investments in theory eventually pay a profit, they’re often risky and can have lower returns.

The idea that impact investments are risky and can have lower returns is a common theme throughout financial services. The idea of philanthropy being profitable has become unfashionable. I was thinking about this question with regards the endowment of Trinity College Cambridge.

What I suspect Family Offices and Wealth Managers fear most about impact investment is that it is philanthropic and that they cannot pivot to philanthropy after decades espousing “greed is good”.

Philanthropy gifts, investing loans. However philanthropy can be a gift with reservation, that the gift is for a social purpose. Whereas social impact investing comes with a single reservation – liquidity – the investor can always ask for the money back.

Liquidity is the third (unspoken) issue that the wealthy may have with impact investing, it involves losing total control of wealth, which I suspect is what is meant by “risky”.

If (as predicted by Mark Carney and others  in this article in the FT) liquidity comes under pressure in funds, I would be surprised if Family Offices became sources of “patient capital”

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Philanthropy – Wealth diminishment?

I suspect that social impact investment is attractive to high-end wealth managers as it keeps family money in-house rather than see it flies off to philanthropic institutions, which explains this “peer group” advice

“To the extent that your clients want to do philanthropy, you should be helping them.”

Impact investing (the article stops short of talking of ESG- see below), is also a means of hooking the next generation of investors

“If we don’t get it right, we won’t be able to engage our clients in future,”

There could of course be a third reason for wealth managers to do the right thing, namely “to do the right thing”, though this might be a little too radical to a group of people who think that doing the right thing includes owning private planes, private yachts and expensive automobiles (just for starters).


Nothing philanthropic about wealth management

Wealth managers have seen the threat of philanthropy emerge with a new generation. They have recognised that social impact investment keeps wealth under their management and they are looking to minimise disruption by perpetuating the myth that investing for good is “often risky and can have lower returns”.

I find the high-end of wealth management enlightening as it is transparent.  Huriya is the arabic word for freedom, specifically

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this kind of freedom is flatly opposed to external governance and gives licence to any kind or environmental or social misbehaviour.

One can only wonder how Sustainable and Responsible Investment fits into a “Huriya” framework.


Appendix

For completeness , here is the whole of the article

Some of the world’s richest people may take their money away from private bankers and wealth managers unless they offer more impact investments and philanthropy deals, according to family offices and foundations.

RS Group Chair Annie Chen, whose Hong Kong-based family office is dedicated to impact investments, said at the Asian Venture Philanthropy Network conference in Singapore Wednesday that despite many banks promising to offer more deals that do good, front-line bankers and relationship managers often failed to do so.

Her comments come as private bankers prepare for the transition of wealth away from older family members and toward next-generation investors who have expressed a desire to change the world for the better as well as make money. More than one-third of wealth clients surveyed by Ernst & Young LLP in a report last month said they’re planning to switch financial service providers within the next three years because they’re dissatisfied.

“I’d urge you to really step up your game besides the pronouncements that you make at the likes of the World Economic Forum, and give a budget to your different branches, different regions so that your front-line people — the wealth relationship managers — actually get educated about sustainable investing,” Chen said.

William + Flora Hewlett Foundation President Larry Kramer echoed her sentiments. The $9.9 billion foundations was established by the co-founder of Hewlett Packard Corp. and it awarded about $408 million of grants in 2017.

“A big part of our climate work is beginning to focus on getting banks — retail and investment banks — to change exactly that,” he said on the sidelines of the conference. “To the extent that your clients want to do philanthropy, you should be helping them.”

Read more: Harvard Course Helps Rich Millennials Do Good (and Make Money)

Standard Chartered Plc’s global head of private banking and wealth management Didier von Daeniken said the inability of front-line staff to offer better information was “the biggest headache for us.” High-net-worth individuals will have almost $70 trillion in net investable assets by 2021, according to E&Y.

“If we don’t get it right, we won’t be able to engage our clients in future,” he said.

Von Daeniken said Standard Chartered is training about 50 bankers, or around 15% of the private banking and wealth management team’s front-line sales force, to be experts in the field of impact investing. The bank’s assets under management in impact investing are still small, but growing at more than 10% a year, he said.

Yet the issue is a complex one for relationship managers, whose salaries and bonuses are often linked to the size of a client’s portfolio and its return on investment. While impact investments in theory eventually pay a profit, they’re often risky and can have lower returns.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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