Wealthy families and individuals are more environmentally and socially-conscious and believe in ESG as a philosophy to apply to their personal, investment and business affairs. Mark Cleary writes

Creating change through investments

Philanthropy used to be viewed as one of the most effective ways for wealthy families or individuals to contribute to a better world. Today, however, investing is also seen as a way to pave real change.

This doesn’t mean high net worth individuals and their families are moving away from charitable giving or patronages.

Philanthropy is still key for many of our wealthy clients but we’re seeing a mindset shift in the private investment funds space.

People are taking the view that investing can provide another way to bring about broader, positive change in line with their values and hopes for the future. It doesn’t hurt that while you’re investing in causes you believe in, you can simultaneously benefit from competitive financial returns.

Private funds act as a vehicle to pool capital from at least two investors and must operate on the basis of risk spreading, which means an investment manager must make multiple investments, rather than a sole investment, which would be deemed to expose investors to too much idiosyncratic risk.

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Meeting family and HNWI values with private investment funds

Private funds typically provide an opportunity for private investors and their investment managers / advisers to benefit from more freedom and flexibility with their investments. Depending on investor appetite and specific values or interests, investment managers of private funds can also pursue more aggressive strategies. Likewise, private funds allow managers to pursue investments that would either be overlooked or are simply implausible for larger funds due to a variety of constraints.

Climate change is a significant preoccupation for wealthy families, and in addition to ESG and impact investing, many are looking at how they can use their investments to actively contribute to a more sustainable future.

Looking at investments to mitigate climate change in particular, there’s both a fundamental imperative and a commercial opportunity as we race towards net-zero and carbon neutrality.

Nearly all governments – and people – are in favour of countries becoming carbon-neutral over the next three decades or sooner. But, for example, to achieve the EU’s ambitious targets by 2050, governments simply don’t have anywhere near enough public capital available for deployment.

Trillions of dollars will be needed to invest in various projects, technology and low-carbon infrastructure needed to limit and halt planetary warming. And there’s a clear funding ‘gap’ which will need to be filled by private capital, in all of its forms.  It is hence a very welcome development that through the GFANZ network, over $130 trillion of private capital is committed to transforming the economy over the next three decades.

Cue heightened interest from investment managers and GPs who are looking at the real commercial opportunities to invest in climate-change mitigating technologies or green infrastructure projects, amongst others.  Some wealthy individuals will be happy to invest in larger retail funds under the guidance of their advisers. Others, particularly UHNWIs and families working with investment managers and seeking targeted or thematic strategies, private funds may well be the way to go.

Private funds

Private funds can take a number of different forms and can be open or closed ended. For many investment managers, jurisdictions are increasingly being chosen on the basis of ‘best in class’ for their excellent reputation, but also with a view to their proximity to the investment manager.

ESG scorecard on Earth Day

GlobalData aggregated thousands of records from its proprietary themes, jobs, deals and patents databases to identify the most active companies in the area of ESG in the wealth management & private banking sector.

DBS and Betterment are among the companies best positioned to take advantage of future ESG disruption in the wealth management & private banking industry, our analysis shows.

The assessment comes from GlobalData’s Thematic Research ecosystem, which ranks companies on a scale of one to five based on their likelihood to tackle challenges like ESG and emerge as long-term winners of the wealth management & private banking sector.

Mark Cleary is director at ZEDRA