This is an extract from the 2021 Philanthropy And Impact Investing In The World Of Family Offices Report. Download the full report here.

IMPACT INVESTING

Our family values are centred around honesty, reliability, longevity and impact and not just investments but making an impact generally.

Every decision you take as a Family Office must first start with your lifetime goals and for us, it is important that we look back one day and measure not just financial achievements but the impact we have made on people and whole communities.

That is why we lean towards the Impact Investing Model. While Philanthropy is to simply spend money to improve a situation, Impact Investing is about improving a situation while having a direct return on investment. Both categories can improve conditions but one also generates a return and not only does it generate a return but it allows you to re-invest that return back into a cause you are passionate about and repeat the process.

While Philanthropy is very linear and uses resources on a short-term basis, Impact Investing allows the impact to continue, cycle after cycle.

TAKING OVER PHILANTHROPY

Philanthropy and Impact Investing both strive to make change, whether one can take over the other is a difficult question to answer and depends greatly on the granularity.

It is much easier to spend money donating to a cause as you feel trust for a certain provider or believe passionately in the cause you are supporting. With Impact Investing, the same themes apply, only you need to make much more of a thorough assessment of the business proposal and your expected returns. While we have both the time and resources to make these decisions after thorough due diligence, not every Principal does and that is when Philanthropy can be a great thing for a Family Office able to make an impact without the necessary time, energy or resources required to manage another element in their existing portfolio.

I do however think the ratio of how to make change will itself evolve. While Philanthropy is still a tremendous part of the Family Office play today, Impact will rise as the method of making change. The shift is definitely happening and it will continue to grow for as long as I can imagine but for now tradition, familiarity and politics are keeping it in the picture.

Looking at the German economy for example and here, donations are still very much preferred as a legal model to lessen taxes. At the moment that mechanism still exists but whether it is good for business or not, it simply cannot make as much impact as Impact Investing.

THE GIFT THAT KEEPS ON GIVING

When philanthropic initiatives have the capability to save lives, it is hard to imagine anything being greater. After all, both routes to making change have tremendous amounts of impact and both should be applauded. Logistically speaking however, I can say, that Impact Investing has the capability to make a far greater impact than Philanthropy alone.

Impact Investing is far more focused on giving people the ability to rebuild something together and as a result offering additional financial resources in the form of return which you can then use to repeat the process. It is a longer-term model which can have a much bigger outcome as it allows you to consistently make an impact, generate a return and reinvest those returns to make more impact. It’s the gift that keeps on giving.

Philanthropy on the other hand makes a great impact but it is time-sensitive and limited in its capabilities to make wholesale change. It also cannot be repeated economically with the same pool of resources, it has to be consistently replenished.

SELECTING INVESTMENTS

We rely very much on network opportunities. We do not have a structured screening approach but rather trust in our long-term relationships within our network and assess thoroughly each opportunity and conduct thorough due diligence. This is combined with our underlying passions and experience as a Family Office and so education and energy efficiency for instance are two areas targeted in our Impact portfolio.

MEASURING SUCCESS

When it comes to measuring the success of an Impact Investment it is both simple and difficult.

Financial success is very easy to measure as it is the same as any other financial instrument. We will compare the investment to benchmarks within the broader asset class and measure the return on investment in the same way we might a non-impact investment. For instance, if we were investing in the development of houses for the homeless, we might compare that against other real estate indexes but in terms of impact, that is quantified on a more specialist and individual basis such as the United Nations ambition to end poverty. It very much depends on each investment but we can extract an array of both tangible and quantifiable metrics from any investment be it improving biodiversity, reducing pollution or enhancing education in poorer communities.

We lean towards existing models and benchmarks and look for as many tangible and quantifiable figures as possible.

One thing we do not do however is think to self-gratitude.  There are many who might measure the success of a donation or Impact Investment by the feeling it returns but I believe we must move away from this centric model and instead look objectively to the theory of change. How much impact have you made? What have you changed?

DOING GOOD IS GOOD FOR BUSINESS

Earlier I touched upon the tax advantages that can come attached to philanthropic initiatives. There are however more benefits to be had, aside from taxation. From an organisational perspective, pledging to make change in any format is hugely beneficial. From a marketing perspective to better position yourself more competitively or to simply meet expectations. ‘Doing good’ is no longer a benchmark but a requirement from clients, customers and investors. It is a wise decision to incorporate this into your everyday operations not only from a commercial perspective but a cultural one too. Ample studies have shown that organisations that focus on making an impact can increase the productivity of their employees as they realise they are working towards shared objectives with aligned interests. Never has this been more relevant and necessary than in Family Offices.

ADVICE TO OTHER FAMILY OFFICES

I have three pieces of advice for other Family Offices that want to start making impact. The first comes to talent.

Rather than looking for ESG specialists as many do, we focus on cultural fit, passion and personality. We believe that if a person is qualified, competent, passionate and willing, the technicalities can be taught along the way. Passion is a huge KPI for loyalty and in a Family Office, passion comes above and beyond all else. It also guarantees a productive culture and long-term alignment.

Secondly, it is important to learn. It is vital that you spend some time learning from other Family Offices who make impact every day. You do not necessarily have to co-invest with them but simply learn from them and adopt their best practice. Start small as you would with any other new asset class and build a support network of help that you can call upon if needed.

Thirdly, focus on your lifetime goals. As I opened a moment ago, everything is intrinsically linked to your values and objectives as a Family Office. While making money may be great today, you do not want to look back tomorrow and see calculations without change. Make your return but make an impact and make sure that when you do look back, you can tangibly see the impact you have made for generations to come.