Impact investing has gained significant momentum among family offices in recent years. As next generations inherit wealth, they are increasingly driven by the desire to align investments with personal values and social impact. However, pursuing impact does not have to come at the expense of financial returns. Leading family offices have developed innovative models that integrate both. This article will explore how family offices are leveraging their flexibility and long investment horizons to pioneer creative impact investing strategies that also generate competitive returns.
Impact Investing Evolution from ESG to Blended Return Funds
Impact investing practices have evolved significantly over the past decade. Initially, responsible investment focused on integrating ESG risk management. However, asset owners, including high net worth individuals and families, are increasingly seeking strategies that go beyond risk mitigation to proactively target social and environmental impact alongside financial return. This has led to the launch of blended private capital funds aiming to address global challenges outlined in the UN Sustainable Development Goals while still delivering returns comparable to traditional private equity. Partners Group recently launched the PG LIFE fund targeting gross IRR of 15-20% by investing across private equity, real estate and infrastructure with impact objectives aligned to the SDGs.
Leveraging Flexible Capital and Time Horizons
A key advantage of family offices is the ability to take a flexible, patient approach well-suited to impact investing. While traditional funds work on fixed life cycles (e.g. 10 years), family offices have perpetual capital and life-long time horizons spanning generations. This enables them to nurture innovative business models with long lead times to profitability. LeapFrog Investments, backed by family offices, has successfully built global leaders in financial inclusion and healthcare access by providing patient growth capital over 10-15 years.
Direct Investing into Seed Stage Social Enterprises
Family offices are also pioneering new impact models by investing directly into social purpose seed stage ventures. While risky, this allows full alignment and flexibility to nurture ventures over long periods. The ImPact is a membership network of family offices that provides deal flow and co-investment opportunities into early stage social enterprises across sectors like sanitation, agriculture and clean energy. Families gain access to a pipeline of deals as well as impact measurement expertise to help evaluate social ROI.
Co-Investing for Knowledge Sharing and Leverage
Networks like Toniic and The ImPact also enable family offices to share learnings and co-invest for greater impact. By pooling capital into larger tickets, families can access deals individually out of reach. They also benefit from sharing infrastructure, evaluation criteria and experiences. The KL Felicitas Foundation co-leads investments with other families into companies providing basic needs like water, renewable energy, sanitation and healthcare in developing countries.
Patience and Relationships Drive Social Enterprises in Emerging Markets
Leading family offices like KL Felicitas emphasize the value of patience and relationship building to successfully grow social enterprises in emerging markets. Long investment horizons and local partnerships enable portfolio companies to navigate challenges and build trust within communities they serve. GRIL Ventures, another family office, takes up to one year of relationship building before investing into a social startup.
In summary, family offices are pioneering impact investing models leveraging flexibility in capital and time horizons.Direct and fund investments provide exposure across stages of business life cycles.Knowledge sharing and co-investment networks magnify impact.Patient capital and local relationships are key success factors, especially in emerging markets.