By Mark Cleary
For wealthy families and individuals, sustainability and the future of the planet is increasingly important – especially as younger generations have a say in how family wealth is deployed. More than ever, this means that environmental impact and climate change is actively shaping how families view private funds.
Beyond simply being a ‘marketing tool’ or the latest bandwagon to jump on, people are more environmentally and socially-conscious and believe in ESG as a philosophy to apply to their personal, investment and business affairs.
Creating change through investments
Philanthropy used to be viewed as one of the most effective ways for wealthy families or individuals to contribute to a better world. Today, however, investing is also seen as a way to pave real change.
This doesn’t mean high net worth individuals and their families are moving away from charitable giving or patronages.
Philanthropy is still key for many of our wealthy clients but we’re seeing a mindset shift in the private investment funds space.
Clients are taking the view that investing can provide another way to bring about broader, positive change in line with their values and hopes for the future. It doesn’t hurt that while you’re investing in causes you believe in, you can simultaneously benefit from competitive financial returns.
Private funds act as a vehicle to pool capital from at least two investors and must operate on the basis of risk spreading, which means an investment manager must make multiple investments, rather than a sole investment, which would be deemed to expose investors to too much idiosyncratic risk.
Meeting family and HNW values with private investment funds
Private funds typically provide an opportunity for private investors and their investment managers / advisers to benefit from more freedom and flexibility with their investments. Depending on investor appetite and specific values or interests, investment managers of private funds can also pursue more aggressive strategies. Likewise, private funds allow managers to pursue investments that would either be overlooked or are simply implausible for larger funds due to a variety of constraints.
Climate change is a significant preoccupation for wealthy families, and in addition to ESG and impact investing, many are looking at how they can use their investments to actively contribute to a more sustainable future.
Looking at investments to mitigate climate change in particular, there’s both a fundamental imperative and a commercial opportunity as we race towards net-zero and carbon neutrality.
Nearly all governments – and people – are in favour of countries becoming carbon-neutral over the next three decades or sooner. But, for example, to achieve the EU’s ambitious targets by 2050, governments simply don’t have anywhere near enough public capital available for deployment.
Trillions of dollars will be needed to invest in various projects, technology and low-carbon infrastructure needed to limit and halt planetary warming. And there’s a clear funding ‘gap’ which will need to be filled by private capital, in all of its forms. It is hence a very welcome development that through the GFANZ network, over $130 trillion of private capital is committed to transforming the economy over the next three decades.
Cue heightened interest from investment managers and GPs who are looking at the real commercial opportunities to invest in climate-change mitigating technologies or green infrastructure projects, amongst others. Some wealthy individuals will be happy to invest in larger retail funds under the guidance of their advisers. Others, particularly UHNWIs and families working with investment managers and seeking targeted or thematic strategies, private funds may well be the way to go.
Private funds can take a number of different forms and can be open or closed ended. For many investment managers, jurisdictions are increasingly being chosen on the basis of ‘best in class’ for their excellent reputation, but also with a view to their proximity to the investment manager.
For investment managers located in the UK, Jersey and Guernsey are naturally competitive jurisdictions. For investment managers hailing from the US and LatAm, the Cayman Islands offers a suitable jurisdiction. Singapore is a natural ‘go-to’ for private investment funds for Asian families and individuals too.
How ZEDRA can help
For more information on all types of funds including private funds and to generally discuss investing for the future, please contact Mark Cleary.