Philanthropy to Impact Investing – This Paradigm Shift is Changing the Investment World

September 5th, 2015

Ever wondered why there’s so much emphasis on the term “give and take” in every area of our lives? It’s basic human nature – most individuals know only how to take and build upon what they have been given. It’s only after their own needs and desires have been fulfilled that the time comes when they feel the need and realize the importance of giving.

However, every successful individual aspires to give back to society at some point, and impact investing helps them do just that.

How Do Impact Investing and Philanthropy Come Together?

Investing with the purpose of contributing to a social or environmental change, which benefits both the society and the investor, is now taking on a paradigm shift towards philanthropy. Acts of philanthropy through impact investing give out the best returns, not just financially, but also on a deeper and more meaningful level, i.e. ‘giving back’.

Here are three impact investing approaches that are commonly adopted by philanthropic investors:

1. Philanthropic Approach of Wealthy Investors:

A certain cause strikes a chord within every individual, and being in a position to make a difference only amplifies the need to contribute to it. Family offices have initiated personalized and impactful means for clients who wish to partake in charitable endeavors by giving back to society through tailor-made philanthropy packages that yield substantial returns.

The philanthropic practices of Bill and Melinda Gates have proved to be highly inspirational, since they contribute generously to a plethora of causes that require attention and considerable means, in a time where the gap between the “resource-less” and the “resource-full” is immense. From aiding in reforming education to fighting off various diseases, the Bill and Melinda Gates Foundation has managed to alter the lives of millions.

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2. Philanthropy and the Millennials:

Generation Y, better known as the millennials, are self-aware and empowered with a unique outlook, for they feel the need to constantly be in touch with the happenings of the world. They understand the need of the hour as well as what they can do to bring about change, and they don’t shy away from it at all!

Financial advisors (adept with the knowledge to help implement such changes through impact investments) appeal to philanthropy-driven millennials who are conscious about social, environmental and global concerns. Various charities have found a new lease on life, with millennials giving to the causes they hold dear and realizing that the change they help bring about is the legacy that they leave behind.

3. Family Philanthropy through the Family Office:

Other than wealthy individuals, high net worth families are also keener than ever to invest their funds in avenues that pursue philanthropy; besides fetching them an appropriate return on their investment. There is also the added benefactor of tax exemption that comes hand in hand with giving to charities or investment vehicles that contribute to a worthy cause.

Family office advisors have a clear understanding of their client’s objectives, as well as the experience and know-how to help them achieve their aim. Their assistance is invaluable for philanthropic families, guiding investments in a manner that fits the client’s goals, all the while aiming higher to benefit a cause that matters.

The affluent and wealthy can and are doing their part in this paradigm shift, by making a difference through investing in philanthropy packages which make an impact towards their desired cause. This has inspired the younger generation of investors to follow suit too, even before they reach the stage where they’re really considered “well-off”.

In this important philanthropic paradigm shift, priorities are shifting, social good is being rewarded, financial disruption is happening, and ultimately, the consumer’s voice is being heard.  Today, donors expect a personalized and impactful approach to their giving, and they need someone to guide them through their charitable endeavors. Tailored philanthropy packages are being developed based on an individual donor’s interests and desired level of support.

So far, impact investing, at least when it comes to private equity, has been limited to the ultra-wealthy, but we’ve seen what happens when larger populations gain access to markets — they take off. Syndicating opportunities the way wealth management firms would handle say, an IPO, could be groundbreaking.

True philanthropists want real results, are willing to take risks, and will bet on ideas if they understand their true potential.

This kind of new impact investing allows philanthropists to incorporate the skills that anchored their own successes, and at the same time solve major problems in the innovation life cycle. This socially responsible investing has an opportunity to introduce a new and scalable source of risk capital, filling the void left by federal and corporate cutbacks and venture capital.

Today, donors, through novel, targeted investment strategies, could have a powerful chance to fuel the nation’s innovation economy and affect large-scale social change.