The shift towards impact investing among family offices is becoming more prevalent as they seek to align their investment strategies with social and environmental values.
Family offices in the Asia-Pacific region, especially in China, face regulatory obstacles that hinder their ability to invest in social themes. This divergence highlights the challenges families face as they transition from traditional investment strategies to those that prioritize sustainability and social impact.
Family offices are not currently allocating their entire portfolios to impact investing, but instead, they are setting aside specific portions for this purpose. Many families are experimenting with targeted investments in areas such as climate change and healthcare, reflecting their personal values and interests. However, only a few of the largest and most sophisticated family offices are considering a full-scale shift towards impact investing. This gradual approach reflects the broader hesitance within the wealth management sector to fully embrace sustainability as a core investment strategy.
The generational shift within family offices plays a significant role in investment decisions. Younger heirs are advocating for portfolios that align with their values, including a focus on sustainability and social impact. However, this transition can be challenging as older family members may be resistant to changing long-standing investment strategies that have been successful in the past.
Despite these challenges, there is a growing recognition among family offices of the importance of aligning investments with values. Research suggests that nearly half of family offices anticipate climate change becoming a significant concern in the next five years, indicating a potential shift in priorities. However, currently, only a small percentage view climate change as a top risk, indicating that the transition to impact investing is still in its early stages. Ongoing discussions within families about the balance between traditional investment approaches and emerging social themes are crucial for determining the future of wealth management.
UBS is playing a significant role in guiding family offices through this transition. The firm provides research and insights that demonstrate the financial viability of sustainability-focused investments. Through workshops and advisory sessions, UBS helps families articulate the investment case for impact investing, facilitating a smoother transition towards more sustainable portfolios. UBS recognizes that the journey towards full impact investing varies for each family, taking into account their circumstances, values, and investment history. The firm emphasizes the importance of gradually introducing sustainability-focused investments while mirroring existing asset allocations, allowing families to maintain stability while exploring new opportunities that align with their values.
Family offices face challenges in scaling impact investments, particularly when it comes to allocating capital to smaller, innovative managers. The due diligence process for smaller funds can be resource-intensive, leading many families to hesitate in committing significant capital. This reluctance is more pronounced among larger family offices, which prefer to invest in established managers with proven track records. Balancing the desire to support emerging managers with the practicalities of investment allocation creates a challenge for family offices. Education and awareness around the potential of smaller, innovative funds are crucial in these discussions about investment strategies.
Looking ahead, there is the potential for a significant shift in family office investments towards impact and sustainability. With an estimated $84 trillion expected to pass to younger heirs by 2045, family offices have a unique opportunity to use their long-term focus and patient capital to finance green solutions. The commitment of the next generation to align their investments with their values could drive a broader movement towards sustainable investing. Financial advisors and institutions like UBS will play a crucial role in helping family offices navigate the complexities of intergenerational dynamics and investment strategies. By providing research, education, and support, these entities can help bridge the gap between theory and practice in impact investing. The ongoing evolution of family office investment strategies will shape the future of wealth management, with sustainability and social impact at the forefront.