Let’s look at what sets impact investments apart and why they’re a good fit for family offices.
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Unfortunately, these ‘exclusionary’ strategies don’t necessarily achieve positive ESG outcomes. For instance, ESG trends encouraged many oil and gas companies to divest dirty assets to private equity companies that don’t have strict reporting requirements. As a result, these oil and gas projects could do more harm than before.
Impact investments go beyond avoiding harmful investments to actively seek out investments to solve specific problems like climate change or social injustice. For example, an impact investor might invest in a portfolio of solar fields across the U.S. to promote the transition to renewable energy or affordable housing developments to address inequality.
A notable downside of impact investments for the $6 trillion family office market is the relatively small size of the market. Currently, impact investing remains just a $715 billion industry, according to the GIIN. As a result, there could be more demand than supply when sourcing projects and generating compelling returns.
Another challenge is defining key performance indicators (KPIs). While financial returns are straightforward, assessing the impact of an investment is much more challenging. For example, some asset managers may want ‘additionality’ or to provide an impact that wouldn’t have occurred otherwise. But proving such additionality is a challenge.
ImpactAsset and other investment management firms provide family offices with access to high-impact deals, along with back-office administration, due diligence services, and custom portfolios. As a result, it’s much easier for family offices to source non-public deals without building project portfolios from scratch.
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