The next three decades will see the largest transfer of inter-generational wealth in history. It is estimated that between $30trn (£23trn) and $40trn (£30trn) of wealth will be transferred down from Baby Boomers to Generation X and onto Millennials. And that’s just in the US. Below CEO Today hears from Belinda Thomas, partner at Triple Point, who argues impact investing is destined for good things as generations pass on their wealth.
In the next three years alone UBS forecasts $7trn globally will pass into the hands of Millennials. Moreover, Boston Consulting Group forecasts women are likely to hold $72trn of private wealth by 2020; about a third of the global total, and more than twice as much as they held in 2010.
That presents wealth managers with an opportunity to cater to a cohort of investors who are far more values-driven than perhaps has been the case in the past. Value driven investing is not a new phenomenon. We can trace its history back at least as far as the Quakers. The 1980s saw the birth of the Socially Responsible Investment (SRI) movement, which led to ethically-minded investors screening out so-called ‘sin stocks’ or goods from countries with questionable political regimes.
But the 21st Century has seen support for Environmental, Social and Governance (ESG) investing surge. This has in part been driven by the fact we now live in an age where we have more information available to us enabling investors to make more informed decisions.
Moreover, research suggests both women and millennials are more likely to invest in line with their values. A survey by BlackRock last year found that 67% of millennials want investments to reflect their social and environmental values, while 76% of women said the same.
Today however, it is not enough for investors to simply avoid the ‘sin stocks’. And in fact, within ESG investing it is now common to talk about a spectrum of capital. This spectrum has financially-driven investment at one end and pure philanthropy at the other with a number of approaches sitting in between. And one of those approaches, which is becoming an increasingly important theme in recent years among both private and institutional investors alike, has developed into what we now know as impact investing.
Impact investing actively sets out to address societal challenges by seeking investment opportunities that both seek to benefit society while also allowing investors to benefit from returns. It is growing fast too. According to a recent Global Impact Investing Network survey, investors committed more than $35 billion to impact investment deals in 2017, a 58% increase on the previous year; while the total impact assets held by its respondents were worth $228 billion, double the 2016 total. Moreover, the market is expected to explode in the next couple of years. Two separate reports from Standard Life and JPMorgan both forecast the global impact investment sector will be worth $1 trillion by 2020, against $60bn today.
It is therefore vital that wealth managers develop their knowledge of Impact investing. Many will need to familiarise themselves with the range of products and funds available so they can identify and clearly articulate to clients the differences between these products.
The landscape will only become more complex as the involvement of individual investors in Impact accelerates and asset managers capitalise on the growing interest by creating more impact strategies. It is against this backdrop that Triple Point launched the Impact EIS Service, initially raising £10m, that offers with a £25,000 minimum investment, a portfolio of between 8 and 12 fast-growing companies with the potential to achieve significant returns of 5-10x across four key sectors – the environment, health, inequality and children and young people.
Advisers should not see the move to impact as a separate discipline, but rather as an investment product, which involves their traditional skills of financial analysis, asset allocation and client care to ensure that they meet their clients’ objectives.