Most parents want their children to be knowledgeable in the ways of the world, to be able to operate successfully, and to be in command of their own futures. And few aspects of life are more important than being financially adept. This is where impact investing can come into play for family offices. Impact investing is an excellent way to inculcate a family's values by way of practical experience and sound investment principles.
An impact investment has two important criteria: 1) the investor is trying to make money; and 2) the investor is trying to create measurable social impact in the process. Impact investments can be made in multiple sectors, geographies, and asset classes, and can have different strategies for change and return profiles.
Besides being an emerging, viable way to deploy capital, impact investments are important because they can and should play an important role in training and integrating a next-gen family member into a family office. Taking an active role in sourcing and monitoring the impact investments will help the next gen learn more about the existing family office, hone relevant skills and experience, and allow the next gen to find their voice in the family office.
Growing up in a family does not guarantee that one understands the family office. Familial ties with the money-making generation do not mean that one can understand the older generation's values, risk profiles, and biases. By making impact investments as part of a family office, one will be able to learn about, pressure test and ultimately understand those values, tolerances and biases while also gaining experience with the processes and protocols of working within the family office framework.
Most family offices historically have expressed their values through philanthropy. Values-driven philanthropic giving becomes increasingly difficult, however, as families expand and operating companies turn into investment vehicles. Impact investing is not a replacement for philanthropy; rather, it complements it. Impact investing offers the ability to introduce new perspective to solving the social problems near and dear to families, problems which, frequently, they already have been hoping to solve through philanthropy. Impact investing also offers the opportunity to utilize new technologies, business models, incentives and different types of talent.
Having a next gen working on impact investing will not only be a great way to transfer values from one generation to the next, but will also provide families with the added benefits of increasing their asset base, teaching new family members about investing, and even providing members with an entrepreneurial mentor who may have a unique ability to inspire as a non-family messenger.
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