Impact Investment Programs: One Size Fits… One

Buddy Webb, CFA® BY: Buddy Webb, CFA® 04.23.18

A Custom Impact Investment Strategy Seeks to Meet High Net Worth Investors’ Unique Values and Priorities

Working with Ultra High Net Worth families involves tailored strategies in the areas of estate planning, tax planning, and risk management. Custom investment portfolios are also often part of a comprehensive wealth management offering so why should families who are looking to implement an impact investment program go with an “off the shelf” option?

Defining A Legacy – Investing for Impact

Each of our client families has an opportunity to define their legacy. In many cases, this means imparting a particular set of values on to the next generation. In other cases, it means improving the lives of others through charitable giving (both time and financial resources). Most often it is a combination of these ideas, and more and more families want to use their investment portfolios to define their legacy. Each family’s unique values and priorities dictate a custom impact investment program.

Portfolio Return Versus Impact

It was not long ago that a conversation around investing for impact involved the trade-off between earning a market-based expected return and having a positive impact. Finding the “sweet spot” where you could expect both was challenging. Today, the landscape is somewhat different, but families will still on occasion accept a return on an investment that is below market in order to target a specific impact (community loan funds may fall into this category). We feel this option is perfectly acceptable, provided the client has a good understanding of the trade-off and the ramifications for the portfolio in aggregate.

Finding the Right Recipe: What to Include and What to Take Out

As referenced above, the impact investing arena continues to evolve. The idea of “negative screening” (removing fossil fuel stocks from an equity portfolio for instance) is not new–if anything, it has become progressively easier to implement. While it is rewarding to help clients eliminate positions from their portfolios that do not align with their values, often the next step in the process is to help clients proactively include investments that do align with their values (renewable energy for instance). These investments can be public or private and depending on the background of the particular family and the scale of the investment, they can potentially afford the family an opportunity for an active role in the investment. This example is another in which values can be passed across generations.

The Opposite of Set It and Forget It – Revisiting Your Impact Investing Strategy

We have discussed the pros and cons of robo advisors in another post but it should be clear that helping a family articulate and implement their beliefs and values is anything but a “cookie cutter” process. Furthermore, like any investment strategy, an impact investing program should be revisited frequently. Returns should be measured as should impact (to the extent possible). Family values can evolve over time and, as referenced above, the investment landscape changes. Independent wealth management firms that specialize in working with Ultra High Net Worth families are well-suited to help their clients develop and continually improve on these customized programs.

 

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