News

How the passion of high-net worth investors drives impact investing

The past months have seen an increasing number of private wealth-holders going public with their engagement for integrating social and environmental aspects in their investments. An article by the Financial Times portrays Justin Rockefeller and other young members of historic dynasties that are taking their family offices into a new era of investing in line with their values. Annie Chen, a long-time onValues client, was portrayed in an August article in Barron’s and a Huffington Post blog in September. Ben Thornley, the author of the blog, notes how passion drives this new generation of investors and that “..institutional investors looking to high net worth individuals to shoulder the early-stage risk of impact fund managers, and for advisors to high net worth clients, understanding why and how the wealthy make impact investments is essential”.

Challenging future financial return assumptions

During the past 30 years, financial markets repeatedly went through boom and bust cycles both in developed and emerging markets. Despite the asset price declines during bear markets, long-term investors who held on to their investments in equities and bonds still earned total returns that were well above long-term averages. Many investors have become used to the high returns of their investment portfolios and assume that future performance will be similar to what they observed in the past.

Several years ago already, onValues has started working with clients to derive more realistic expectations for future portfolio returns. Our analysis shows that the drivers leading to the exceptional returns of the past years are weakening and that asset returns will probably be below historical averages during the next decade. A recent McKinsey Global Institute report gives a good overview of the challenges ahead by taking a closer look at the driving forces of asset returns. The study concludes that in the recent past, asset returns were lifted by a unique but now fading combination of economic and business factors. Using a multi-factor approach with real economy and corporate fundamental factors, McKinsey argues that investment returns in the US and Europe over the next 20 years could be substantially lower – even in very favourable economic scenarios. These findings are consistent with those based on several other approaches seeking to forecast asset returns. onValues, for example, uses deviations from long-term asset valuation levels as one of the major determinants of future returns (see this previous news). Based on these signals we review our clients’ investment strategies, adjust expected asset class and portfolio returns, and are able to point to particularly attractive or unattractive investment areas.

Swiss pension funds and responsible investment

Swiss pension funds still treat responsible investment mainly as an activity separate from other aspects of the investment process, rather than fully integrating environmental, social and corporate governance (ESG) considerations into investment decisions, according to a recent study by ShareAction and WWF Switzerland. This conclusion is based on a survey of the 20 largest pension funds in Switzerland, representing CHF281bn (€253bn) in assets, or around 36% of all Swiss occupational pension funds. Sonia Hierzig, research officer at ShareAction and author of the survey report, said: “The results demonstrate that, whilst the 20 funds we looked at do consider responsible investment, there’s a long way to go to adopt international best practice, particularly when it comes to transparency and climate risk management.” Ivo Knoepfel of onValues was part of the panel of experts that provided guidance for developing the survey methodology.

Rethinking wealth: how an Asian family office successfully aligned its investments to its mission

RS Group, the Hong Kong based family office, has just released a detailed report describing its six year journey in building a 100% sustainable and impact investment portfolio with the support of onValues. The report shows that, in addition to tangible social impact contributions, such a portfolio achieves financial returns and risk levels that are absolutely in line with traditional portfolios. In the introduction to the report, RS Group’s principal Annie Chen explains how important it was for her to align her wealth to her values and to use all forms of capital (grants and investments) in support of sustainable development in the context of a so-called total portfolio approach. onValues supported (and continues to support) RS Group at different levels: in defining a long-term strategy and asset allocation for the whole wealth, in selecting the best investment managers globally for each asset class, in regularly monitoring and reviewing the portfolio, in consolidating financial and impact information. During the launch event for the report, Annie Chen expressed her hope that by sharing her experience other family offices and investors throughout Asia will be motivated to engage in similar initiatives. More information can be found at the report's website.

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