As India is becoming richer , we now have a large number of high net worth individuals who have become wealthy. They have made plenty of money, and many would like to be able to deploy some of it for a good cause. They’ve achieved a lot in their own lives, and they want to make sure that their money works as hard as they have worked. In the prime of their life, they’re no longer just looking for a financial return, but are also interested in investing for impact. They want their money to be used for a higher purpose, because they know that money can be a force for good.
Often they’re not sure how to do this, so that effectively their money ends up leading a schizophrenic life , Most of their money is utilized in order to generate the best return possible (typically , either through equity investments, or in real estate); and a small proportion is used for philanthropy or charity. However, they are never sure whether this money is being utilised effectively, because there has been little transparency when grants are provided to NGOs, who often do a poor job with documentation and reporting.
This approach is not very efficient or effective, because this reduces the amount of money which they can deploy for philanthropy. This bothers them, because they understand that they are not doing a good job at giving back to society.
It’s now time for an integrated holistic approach, and the good news is that there are now lots of impact investing success stories . This new area gives sophisticated, mature investors a chance to make sure that their money doesn’t only provide a financial return, but also creates social impact – it allows them to get the biggest bang for their buck ! This is an ecosystem which has gradually been maturing over the last 20 years, and it’s just a matter of time till it becomes mainstream. There are now lots of structured financial products within the impact investment space , which are ripe for investment. Not only do these provide a financial return, they allow investors to engage with young social entrepreneurs who are out to change the world.
It can be very gratifying to see that your money is having a positive impact. Even better, this impact will outlive you, because these social enterprises are designed to be scaleable and sustainable . These innovative entrepreneurs need capital to catalyze their dreams, and you can help these dreams to come to fruition. The good news is that you don’t even need to settle for less than market returns ! In fact , some of these investments in social impact companies will give far better financial returns, because they multiply the advantages of human capital, social capital, as well as financial capital.
It’s also a very sensible tool for asset allocation , because the returns you get from these companies is completely uncorrelated with the rest of your investments . This is a great opportunity for diversification. Not only does it make a lot of sense from a personal financial engineering perspective, it also helps you to sleep better at night, knowing that you’re giving back to a society which has given so much to you.
I think this is a great opportunity for wealth managers as well , who need to start understanding that people have a deep emotional connection with their money. Their job is not just to manage the client’s money, it’s also to manage the client ! When clients get a positive kick out of the fact that their money is actually being utilized to do good for the community, they feel good about themselves , and they feel good about their money as well. This is specially true for older and more mature clients, as they reach the evening of their life , because they want to help leave the world a better place. Wealth managers need to learn more about this space so that they can offer this new asset class to their clients. This can become a valuable USP for a forward-thinking financial advisor !
By Dr. Malpani, Director, Solidarity Investment Advisors