Impact investing for family offices

HOW FAMILY OFFICES ARE DEPLOYING IMPACT INVESTING FOR THE GREATER GOOD 

Family offices manage the wealth of high-net-worth individuals (HNWIs) and families. Traditionally, they have focused on preserving their capital and generating returns. However, with the increasing awareness of global challenges like climate change, social inequality, and environmental degradation, many entities are now incorporating impact investing into their portfolios.

Impact investing has led to a significant shift in the world of investment. More and more family offices seek to incorporate impact investing into their overall strategy. This approach aims to generate financial returns while creating a positive social or environmental impact.

Here, we will discuss the growing trend of impact investing among family offices.

WHAT IS IMPACT INVESTING?

Impact investing intends to generate a beneficial social or environmental impact alongside a financial return.

Unlike traditional investing—which focuses solely on financial gain—impact investing aims to balance profit with purpose. This approach covers various sectors, including renewable energy, affordable housing, healthcare, education, and sustainable agriculture.

The impact investing market has seen significant growth. In 2022, the Global Impact Investing Network (GIIN) estimated the market size for impact investing to reach $1.164 trillion. They also predicted its continued growth based on the increasing investor awareness of global issues. [1]

THE ROLE OF FAMILY OFFICES IN IMPACT INVESTING

Uniquely positioned family offices drive the impact investing movement. These private wealth management entities cater to the financial needs of ultra-high-net-worth families, often managing assets worth billions. Unlike institutional investors or mutual funds, family offices have greater flexibility in their investment choices and are not bound by the same fiduciary duties to external shareholders.

LONG-TERM PERSPECTIVE 

Although every investment can impact wider society, one of the key reasons family offices are drawn to impact investing is their long-term perspective. Family offices can afford to invest with a horizon that spans generations, unlike traditional asset managers, who may face pressure to deliver short-term results. [2]

This long-term outlook aligns well with the nature of impact investments, which often take time to realize their full potential. For example, investments in sustainable infrastructure or early-stage social enterprises may require a longer timeline to generate returns. With their patient capital, family offices can support these ventures through their growth phases, contributing to their success and increasing the likelihood of achieving their desired social or environmental impact.

ALIGNMENT WITH FAMILY VALUES

Another significant factor driving family offices toward impact investing is the alignment with family values and legacy.

Many established family offices work to preserve the wealth, values, and vision of the founding generation. Impact investing offers an opportunity to ensure that the family’s wealth contributes to causes that reflect their beliefs, whether environmental stewardship, social justice, or community development. [2]

This alignment is particularly evident in the growing involvement of younger generations within family offices. Millennials and Gen Z, increasingly taking on leadership roles in family businesses and investments, tend to prioritize sustainability and social impact more than previous generations.

More and more investors worldwide recognize that they can combine positive social and environmental impact with a financial return. [2]

THE APPEAL OF DIVERSIFICATION

Impact investing also offers family offices an attractive diversification strategy. While often lucrative, traditional investments are subject to market volatility and economic cycles. Impact investments, sometimes including private equity, venture capital, or tangible assets, provide an alternative to public markets and can hedge against conventional market risks.

Impact investments often target emerging markets or innovative sectors underrepresented in traditional portfolios. Diversification helps spread risk while opening new avenues for growth. For instance, investments in renewable energy or sustainable agriculture can tap into the growing global demand for cleaner, greener solutions.

CHALLENGES IN IMPACT INVESTING FOR FAMILY OFFICES

While impact investing has many benefits that have made it popular among family offices, it also comes with several challenges.

One of the primary difficulties lies in the measurement of impact. Social and environmental impact is not easily quantified. This lack of standardized metrics can make it difficult for family offices to assess the effectiveness of their investments. [3]

The diversity of impact goals—ranging from climate change mitigation to social equity—adds complexity, as different goals require different metrics and benchmarks, making it challenging to compare and evaluate investments consistently.

Additionally, finding suitable investment opportunities that align with the family’s financial goals and impact objectives can be difficult, especially in niche or emerging sectors where impact investments are often concentrated. There may be situations in which family offices have to choose investments that may deliver strong social or environmental outcomes but offer lower financial returns than traditional investments. [3]

This trade-off can be particularly challenging for family offices with a strong legacy of wealth preservation and growth. This can limit the scalability and diversity of impact investment portfolios, making it harder to achieve both meaningful impact and satisfactory financial returns.

Impact investing represents a decisive shift in how family offices approach wealth management. As family offices continue to embrace this trend, they will play a crucial role in shaping a more sustainable future.

By aligning financial returns with social and environmental impact, family offices can preserve and grow their clients’ wealth and contribute to society’s betterment. While challenges exist, these obstacles are being addressed through innovation, collaboration, and the growing sophistication of the impact investing ecosystem.

A UNIQUE REAL ESTATE INVESTMENT EXCLUSIVE TO ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION

The rise of impact investing is more than just a trend; it reflects a broader shift in values and priorities, a shift towards a more responsible and purposeful approach to investing.

HNWIs have access to these unique investment opportunities that are unavailable to other investors. Accredited investors have the financial sophistication and investing experience to assess these exclusive investments properly. Their net worth and annual income also serve as a financial safety net, protecting their wealth if a particular investment does not work favorably.

This is why the U.S. Securities and Exchange Commission (SEC) allows accredited investors to participate in unregistered securities.

Family offices know how to capitalize on these unique investment opportunities to fulfill their goal of growing and preserving the wealth of HNWIs and wealthy families. One such investment is real estate syndication.

Real estate syndication involves multiple investors pooling their financial resources to purchase a single real estate property arranged by the owner/operator or sponsor. While this can be done with any real estate, multifamily syndication is viral among investors due to the numerous advantages that come with owning multifamily real estate. [4]

Apartment communities, condominiums, and other multifamily properties are generally associated with strong, predictable cash flow due to the large number of units and residents providing rental income. However, these properties also tend to be more expensive and difficult to manage, making them a challenging investment for those interested in real estate.

With multifamily syndication, these substantial properties become far more accessible. Participating in a syndication deal means you do not have to pay for the entire multifamily property alone. It also means investors do not have to take on all that risk independently. [4]

Real estate syndication allows accredited investors to enjoy all the benefits of owning a real estate property without the headaches that typically come with it.

Real estate investors do not have to become landlords in a syndication deal. They do not have to deal with residents, collect rent, handle emergencies, or take care of repairs and maintenance. As the deal’s general partner (GP), the owner/operator takes on all these responsibilities. [4]

The GP is responsible for compiling the syndication deal from start to finish. They create and execute the business plan, which involves locating the investment property, performing due diligence, securing the loan, and finding investors who will participate.

The owner/operator also handles property management, making this a hands-off investment for real estate investors. Accredited investors must only provide a share of the capital needed to acquire the property. They also pay specific fees to support the syndication deal. However, as limited partners (LPs), they have no further responsibilities or liabilities. [4]

Accredited investors participating in multifamily syndication can sit back, relax, and enjoy the fruits of their investment. They earn a share of the property’s cash flow, which may be distributed monthly or quarterly. Depending on the deal structure, they may earn a percentage of the equity upon resale.

The private placement memorandum (PPM) or syndication agreement should detail the profit split. Investors should remember that every deal differs, so due diligence is still necessary.

WORK WITH BAM CAMPITAL FOR AN AWARD-WINNING MULTIFAMILY REAL ESTATE TEAM

Investors should know that even multifamily syndication has its risks. For example, it is exposed to illiquidity like any other real estate investment. These deals last years, which means investors must be comfortable with not having access to their funds for extended periods. This is why most syndication deals are exclusive to accredited investors.

This is also why it is necessary to work with a trusted sponsor. If you want an owner/operator with a track record of excellence and producing results, work with BAM Capital.

BAM Capital is the private equity arm of The BAM Companies, a vertically integrated institutional multifamily real estate owner/operator. This Indianapolis-based sponsor is known as a leader in its industry, prioritizing high-quality, attainable multifamily real estate properties that are Class A and focusing on properties with proven upside potential and in-place cash flow. [5]

BAM Capital’s award-winning investment strategy mitigates investor risk while creating forced appreciation. This is why the owner/operator now has over $1.2 billion in AUM and ~6,500 apartment units. [5]

BAM Capital can guide investors through every step of the syndication process, from acquiring the property to managing it.

No investment is without risk. Before making financial decisions, consult your investment advisor or speak to a BAM Capital investment team member.

Schedule a call with BAM Capital and invest today if you are an accredited investor who wants to enjoy passive income and all the other benefits of being in multifamily syndication.

Sources:

[1]: https://www.weforum.org/agenda/2024/01/data-impact-investing-davos24/

[2]: https://www.pwc.com/gx/en/services/family-business/family-office/impact-investing.html

[3]: https://www.linkedin.com/pulse/impact-investing-navigating-challenges-opportunities-family-mueller-wdhge/

[4]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[5]: https://capital.thebamcompanies.com/