Keeping impact in the family

For a manager aiming to achieve positive social or environmental impacts alongside financial returns, one of the first places to look for capital is at the doors of family offices. Ultra-wealthy families have a long history of engaging in philanthropy; now, many are turning to impact investing as a means to grow their assets while continuing to advance their favored causes.

Family offices certainly have the means to make a significant contribution to social and environmental ventures. Globally, family offices have a financial war chest amounting to $5.9 trillion, according to the Impact Investing Institute.

They are also already significant players in the impact investing market. UBS estimates that 25 percent of family offices engage in impact investing. Impact-focused investment managers surveyed by the Global Impact Investing Network reported that they relied on family offices for 15 percent of the capital they raised in 2022.

“Family offices are more important than the size of capital implies” Stephen Muers, Big Society Capital

But the significance of family offices goes beyond simply providing funds. “Family offices are more important than the size of capital implies,” says Stephen Muers, chief executive of social impact investor Big Society Capital. “Quite a few family offices are prepared to do things first, perhaps back slightly more emergent managers, and push the boundaries of what’s possible.”

Navigating impact

Sean Farrell is the chief investment officer at Snowball Impact Management, a firm originally established as a vehicle for a group of family offices that has since expanded to raise funds from external investors. He echoes Muers’ view on the importance of family offices, noting that “families actually can be leaders in innovating and doing something that is less established and new when they believe it makes sense.”

This reflects the reality that, compared with institutional investors, family offices have more flexibility in how they invest their capital.

Farrell says the hesitancy of institutional investors to commit to impact funds can be a “great opportunity” for family investors to find “unexploited niches” where both financial returns and positive impact can be maximized. Meanwhile, he points out that PE managers, which face a difficult and highly competitive fundraising environment, can stand out by designing funds to appeal to family offices that want to achieve impact.

While many family offices engage in direct investing, it can be hard to navigate the complexities of the impact market without the resources of a professional manager. Farrell’s advice is: “Don’t try this at home unless you really know what you’re doing.”

One of the challenges in growing the market is that professional advisers tend to steer clients away from impact, says Farrell, who notes that advisers face “a real disincentive to try to push anything new.”

“I think if this market is going to develop,” adds Muers, “we need to develop an advisory capability that is really focused on impact.”