Family offices (FOs) play an important role in the impact-investing world, but there remains a lot of mystery around how to best navigate them. Most FOs are private by design so it can be difficult to discern which are actively seeking to make more sustainable investments.
All this has many fund managers and social entrepreneurs wondering: How can I see if my company or fund may be a candidate for their capital?
Family offices are generally structures that help ultra-high net-worth families run their financial affairs, including managing assets, preparing taxes and managing philanthropic activity. Of the roughly 10,000 FOs globally, about 40% are in the Americas, 30% in Europe and EMEA, and the balance in Asia. (For context, see “The Promise and Reality of Family Offices and Sustainable Investing” by Scott Saslow.)
Sustainable and impact investing is gaining traction among FOs, according to Laird Pendleton, co-founder and co-leader of The CCC Alliance, a peer network of over 130 single-family offices (SFOs). “It is clear that the rising generation is driving the impact investment trend, and since the transfer of authority in a single family can be a protracted process, newer family offices with younger principals will likely have a larger appetite for impact investing,” he says.
Pendleton also notes that “impact means different things to different family offices. And while many large banks and index funds have been embracing ESG mandates on public companies, family offices are interested in solving specific problems more than they are with complying with broad mandates.”
Family offices can be great sources of capital for impact investments: they already invest in alternatives, they expect to do even more going forward, they have long time horizons and can have flexible return expectations, and a younger generation with progressive values is coming into the mix. Persuading them to allocate that capital to a particular impact investment can be quite tricky, though, so here are a few tools for impact fund managers and social entrepreneurs seeking capital from FOs:
- Know your audience. Take the time to understand how the FO is structured, where investment capital has come from historically, what role the individual plays in the FO, and what the broader set of concerns or interests of the FO are. Understanding the source of wealth for the FO, past press mentions from the family foundation, identifying which boards FO principals sit on, seeing which events and conferences the FO members attend and speak at will all provide insights.
- Know your audience’s challenges. Succession planning and engagement of the younger generation are among the big issues facing FOs, and a good chunk of them expect to see succession events in the next decade. This presents an opportunity for fund managers and social entrepreneurs to offer not only an investment service to a FO, but an educational and bonding opportunity among multiple FO members. Also, know that many FOs struggle with measuring impact, so have your story clear on that subject. You’ll get bonus points if you can educate a FO on how other capital owners measure impact.
- Know your audience’s “balance sheet”. FOs are much more than simply capital; it is important to know all the assets on the “balance sheet” the FO may have to contribute to your success. All investors like delivering beyond the dollar support. For FOs, this includes industry expertise and connections, networks, credibility among other things. Consider what you need, in context with all that a FO has to offer, and make smart asks.
- Know your product. Consider how your investment opportunity compares to others that may be seen as competitive that the FO may have made. This will matter more for direct investments as compared to impact fund commitments. For example, an investor is likely to want to have only one direct investment in a specific category such as food waste, yet for fund commitments it might have several targeting economic opportunity for underserved populations.
- Stay flexible. Fund managers in particular may feel they are being “brushed off” if a FO member suggests they connect with the family foundation for capital. The reality is that some family foundations need help investing their corpus of capital in a sustainable way and may have more readily available capital than other commercial capital vehicles at the FO.
- Play the long game. Realize that participation among FOs in sustainable investing is likely to increase, albeit maybe slower in the next few years as the economy figures itself out. Especially with younger FO members, who tend to gravitate toward sustainable investing, building ties today is likely to create relationships with the sustainable investors of tomorrow.
Scott Saslow is the Founder & CEO of ONE WORLD Investments, Inc.