SFOs in Dialogue: Sustainable and impact investing today
Single family offices (SFOs) are well-equipped with the capital and skills to have a meaningful effect when it comes to sustainable and impact investing.
Credit Suisse research reveals that one in three SFOs are already pursuing sustainable investing and 45% of SFOs plan to increase their sustainable investing allocations over the next 12 months (see Credit Suisse SFO Survey Report 2021).
Yet many SFOs lack the clarity of vision to know where to start. At our recent SFOs in Dialogue event, three senior SFO managers explained how their families’ interests and specialist knowledge have influenced their choices, and also shared tips on how to begin and what success and failure can look like.
Watch SFOs in Dialogue: Sustainable and impact investing highlights
Find out how three very different SFOs approach sustainable investing through three different strategies: ESG focus, carve-out and collaboration.
Choose the right strategy and focus
Stalex Investments, based in London, looks after the wealth of a Swedish industrialist. They focus on environmental, social and governance factors that could pose a risk for certain private impact investments.
Meanwhile, Singapore-based Silverstrand Capital operates a carve-out policy where a proportion of the family’s wealth is set aside specifically for impact investing – in this case in regenerative agriculture.
4L Vision, based in Germany, takes a very different approach. They look to collaborate with other like-minded family offices and independent investors to expand the impact of their investments, which increasingly focus in the sustainable food sector. Indeed, the idea of maximum impact runs deep at 4L Vision, whose name stands for “live, love, learn, leave a legacy.”
Think about priorities
When it comes to getting started, our panel had good advice: consult all the main stakeholders and be patient because impact investing is about the long term. And while it’s important to consider private markets, be aware that public markets and big brands are responding to consumer pressure in this area. In addition, it is vital to have an investment policy statement setting out the values that will define the strategy.
Peter Brock, investment director at 4L Vision, said, “I would always start with […] solid family governance to decide on the family values, then take a practical approach to how you want to invest with those values.”
Patti Chu, co-head of impact investing at Silverstrand, suggested a similar route. “We really took time to define the theory of change – what the parameters were in terms of what type of returns we were looking for in this carve-out, and the type of impact that we wanted to achieve.”
Returns are an important point. Historically, asset allocation has been on a returns-first basis, but with impact investing there can be other priorities, such as seeding new ideas or reducing pollution.
Once the priorities are set, SFOs can aim to create portfolios that generate as much impact as possible. As Chu went on to say, “We’re seeking financial returns… I would say single to high double-digit returns on long-term holdings.”
Sectors to watch: energy, education and healthcare
Jamie Taylor, director at Stalex, noted that while his office has only been operating for a few years, it has taken a broad approach to asset allocation and selected sectors that are known for creating impact with good returns.
“We touch on pretty much all the main areas… so energy, education, healthcare. We’ve also looked at green chemicals… [and] renewable energy” he explained. In the case of education, they have taken a diversified, longer-term private equity strategy. For healthcare, the focus has been on technology and how computers enable better, more personalized care.
As for 4L Vision, Brock said that after an initial free-for-all – when his principal “said yes to many social entrepreneurs” – the focus has recently shifted to food, digital and education.
What success and failure look like
Exits may not always be successful. Brock considers some investments a success, but one involving a “well-performing biotech company” has turned out to be less satisfactory. He admitted that given the SFO’s lack of experience and knowledge in the sector, the fit was not ideal. “We are stuck with potentially quite a huge investment where you can pour in millions. But we are looking for co-investors with deeper biotech know-how or other solutions.”
From setting the right priorities to deciding on the area of focus and operating style, there are many considerations. What is clear is that SFOs are taking up impact investing, using their wealth to help solve the challenges we are all facing in the move to a more sustainable economy.
