RENEW Strategies

Part 2: Impact investing: Transferring wealth, wisdom and values between generations

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Matthew Davis, CFA
| July 24, 2014


Read Part 1 of the series.
After more than two years of managing impact investments in Ethiopia, one of the things I find most interesting is how impact investing is not only creating a bridge between economies; it is creating a bridge between the Baby Boomer generation and their Gen X and Y heirs. Here’s what I’ve learned.


Impact investing combines desires and values that both generations share. Baby Boomers, now moving into retirement, have worked hard to provide for their families, plan for a comfortable retirement, leave some wealth to their heirs and leave the planet better than they found it. As they enter their second phase of life, they focus on answering the question “What will be my legacy?” Their parents, what Tom Brokaw refers to as “The Greatest Generation,” believed that philanthropy was how to use the spoils made during the hard-working years of your life. The Greatest Generation would say -- give it away. And many wonderful elements of society have resulted from this charity. But I have noticed that the Baby Boomers have a different view. They are more concerned about sustainability, asking questions like “What if I cannot write a check next year, will this charity be able to continue on?” And they believe in creating a culture of empowerment versus dependence saying things like “Does the world always expect the U.S. to provide a bailout?" Baby Boomers see impact investing as a way to create a legacy that aligns with their values.

Twenty years younger, their Gen X and Y children are graduating with degrees in business from top-tier schools, but don’t want to spend their lives behind a computer, earning a paycheck and pushing paper around. They want it all - both money and meaning. They are even willing to take a pay cut in order to work on challenging problems in the world.* Many Fortune 500 companies are scrambling to create programs to attract these best and brightest. Members of Gen X and Y care more about doing something meaningful, something they are proud of, than just amassing wealth that they will give away once they retire. This generation sees impact investing as a career choice.

There are already some great examples of impact investing creating a bridge between generations that enables the transfer of shared values and wealth. Take Ron Cordes, who sold his company AssetMark Investment Services to Genworth Financial (NYSE:GNW) and set up the Cordes Foundation. The foundation champions bold, innovative solutions to the world's toughest problems by “connecting, equipping and supporting social entrepreneurs, and by catalyzing new sources of capital for impact investments in social ventures.” Sounds like a man that wants more sustainable ways of creating impact. Ron’s daughter Stephanie, who I had an opportunity to meet with in New York, is a sharp young woman who gave up a promising career in the fast-paced fashion and advertising industry to work with her father at their foundation. She is absolutely fired up about impact investing, and just recently returned from a tour around Africa to look at potential investments. This is a great example of impact investing aligning two generations.

I have also seen it firsthand here in Ethiopia, where we manage a portfolio of investments for the Impact Angel Network, a network of investors around the U.S. dedicated to making investments in high-potential companies in Africa. When the IAN comes to visit with their families on Econ-Tourism trips, I see more than just another family trip: I see appreciation. I see fathers teaching sons and daughters how to review an income statement. I see wealth, wisdom and values passing between generations.

I make the case then, that impact investing is not only a new industry that blends the better elements of philanthropy and investing, but is also a platform to connect two generations that could greatly benefit from some new connection points around wealth and values.

Read Part 1 of the series, contact us at renew@renewstrategies.com or follow us on Twitter @RENEWLLC to find out more.

References:
* Net Impact’s Business as UNusual Report noted that 77% of over 3,300 graduates students surveyed would be willing to take a 15% pay cut to have a job that seeks to make a social and environmental difference.