Why some next-gen family office members prefer impact investing over philanthropy
San Francisco-based investor Jim Chowdry had recently finished grad school when he decided to take a more active role in his family office. "I knew that we had money, and I didn't really understand how it was invested or what the assets were," he said.
Chowdry's father had generated the family's wealth through the aviation cargo business he built from the bottom up. The self-made entrepreneur's death in a plane crash in 2001 led to the formation of the Chowdry family office.
Two years after joining the office in 2016, Chowdry took a cruise with his mother to Antarctica that proved persuasive in the family’s pivot to impact investing.
“It was the first time my mother had attended a lecture on climate change,” Chowdry said. “We talked to the people operating the cruise ship, who said they’ve actively seen the glaciers recede over time. It was an interesting way to expose my mother to this way of thinking.
"Ultimately, she agreed that if my sister and I were passionate about impact investing, we should take it more seriously.”
Chowdry is leading his family’s transition to impact investing. “I wouldn't say that anything that we were invested in six to seven years ago would qualify as having any type of impact," he said. "Today, 5 to 7 percent of our investments are impact.”
The family has also retained a financial adviser with expertise in not only vetting investments but also measuring impact to shift a greater percentage of their portfolio.
Besides a more intentional financial strategy, Chowdry and other millennials are prioritizing impact investing over philanthropy. More than 60% of millennial investors believe impact investing has greater potential to make lasting change than philanthropy, according to a 2022 report by Fidelity Charitable.
- Next-gen family-office members view impact investing and philanthropy as distinctly different.
- More than 60% of millennial investors believe impact investing has greater potential to make lasting change than philanthropy.
- Unlike their parents, next-gen investors don’t have negative associations with the early days of impact investing, when it earned a reputation for low risk and low returns.
- Their strategy: Multiply the impact of capital while generating returns before eventually disbursing funds through a philanthropic grant.
Rachel Gerrol is co-founder and CEO of Los Angeles- and London-based Nexus, a global community of next-generation family-office members, investors and social entrepreneurs that offers education on impact investing. Gerrol has witnessed the change.
“In 2011, many of our members self-identified as inheritors, trustees or philanthropists," she said. "Now those same people are self-identifying as impact investors. We've seen an incredible evolution of people in the next generation who saw themselves as agents of the philanthropic change their families sought to make who are now thinking about the full breadth of their capital and how that can be deployed to drive change at scale.”
MORE EFFECTIVE GIVING
A 2022 Bank of America study found that 87% of millennials believe their giving will be more effective than that of earlier generations. Beyond the consideration of social and environmental outcomes in their decision-making, next-generation family-office members view impact investing and philanthropy as distinctly different.
“There isn’t a risk appetite in the philanthropic space to take on some of the grander challenges of our time,” Gerrol said. “Investment capital can drive what has a longer tail effect on climate than philanthropic gifts that have been made for decades.
"If we relied on philanthropic capital to come up with vaccines for the pandemic, we'd probably still be waiting.”
Unlike their parents, next-generation investors don’t have negative associations with the early days of impact investing, when it earned a reputation for low risk and low returns driven by advisers who played it safe.
Lori Choi is senior wealth manager and a partner at Veris Wealth Partners, which has offices in New York, San Francisco and Portsmouth, New Hampshire. Choi said wealth managers have caught up to the trend and are adapting to meet demand for customized donor-advised funds (DAFs), which are investment accounts with the sole purpose of charitable giving.
“Rather than disbursing capital through grants right away, clients will do a 10-year lockup customized DAF that feels very high-impact to them," she said. "One client allocated funds to a reproductive-health investment. It might have a longer-term or higher-risk profile or a lower-return profile than the market.
"Ten years ago, this wasn’t an option. Now, Fidelity or Schwab will partner with a firm who can conduct due diligence to provide these custom solutions.”
The strategy is to multiply the impact of capital while generating returns before eventually disbursing funds through a philanthropic grant.
'IT'S IN THEIR DNA'
Choi and Gerrol believe younger-generation investors will drive even greater adoption of impact investing in family-office portfolios. Thirty percent of next-generation family-office members have already assumed control of operations, according to the 2022 North America Family report produced by RBC and Campden Wealth. In some family offices, a younger member is often given a small carve-out to demonstrate returns before larger amounts are allocated to impact investments.
Much of the confidence that younger investors have in investing in innovative and alternative solutions to social and environmental challenges comes from the cultural norms of their generation. “It’s in their DNA,” Gerrol said. “They talk about money and investments with their peers.”
San Francisco-based Karine Sarkissian didn’t have a background in finance before joining her brothers in leading their family office. Sarkissian attended conferences to fill the knowledge gap. She and her brother convinced their father, a longtime philanthropist, that directing their funds to solutions-based venture investments would be a better path to profitability as well as provide a more sustainable impact.
“I told him, ‘If you can guarantee returns and support those companies in a way that's a lot more advanced, then you don't have to depend on donations,” she said.
The family’s portfolio is now 100% impact, with the help of a CIO who vets investments.
Sarkissian still sees the benefit of philanthropy but is clear about its limitations.
“We have talked about creating a foundation that has a different purpose, maybe a scholarship," she said. "There's a point at which unless you have a donation, you have to think about your budget in a very different way. When you think about a company that's impact-forward, it leads to stronger sustainability.”
Sarkissian and her peers see their investments as a way to build something rather than just give money away.
“We’ve proven the returns and performance of a lot of our impact-forward companies so clearly to our board and our parents that the numbers are there and they're speaking for themselves.”