Impact Investments Strike a Chord with RIA Clients

Registered investment advisers report growing demand for sustainable, responsible and impact options.


Since early last year, Jon Finney’s duties at CTC myCFO have included building out the impact investing practice. Finney’s mission as director of impact investment with the $41 billion registered investment adviser: Identify opportunities that deliver social and environmental benefits as well as financial returns.

Like other RIAs, Chicago-headquartered CTC myCFO is seeing more interest in sustainable, responsible and impact (SRI) investing. The firm views impact, whose high-profile proponents include British venture capitalist Sir Ronald Cohen and eBay founder Pierre Omidyar, as the next generation of SRI.

Impact investments let clients “hone their SRI interest to specific social and/or environmental interests, geographic regions or specific companies, among other advantages,” says Portland, Oregon–based Finney, who reckons that 5 to 10 percent of CTC myCFO’s 300-plus clients have inquired about SRI opportunities.

Those investors are part of a growing trend. U.S.-managed assets using SRI strategies swelled by 76 percent, from $3.74 trillion to $6.57 trillion, between the start of 2012 and early 2014, according to the Washington-based US SIF: the Forum for Sustainable and Responsible Investment. Nationwide, such assets now account for more than 1 of every 6 dollars under professional management, US SIF reports.

Institutional investments make up roughly two thirds of the SRI total, but a February 2015 survey by the Morgan Stanley Institute for Sustainable Investing found that 71 percent of individual investors are interested in sustainable options.

“People used to view their portfolios as just a livelihood,” says Andy Kapyrin, director of research and partner at RegentAtlantic Capital, a $3 billion RIA in Morristown, New Jersey. But clients’ attitudes are changing, Kapyrin notes: Social concerns have started to influence their portfolio decisions. For example, some no longer allocate to industries they find objectionable, like those involved in tobacco or weapons. Others are seeking out investments aimed at tackling problems such as illiteracy and disease.

RegentAtlantic and other RIAs agree that more clients, particularly Millennials, the demographic cohort born between 1981 and 1996, want information on socially responsible investments. Kapyrin estimates that 2 percent of his firm’s customers focus on SRI; another 4 to 5 percent would qualify as engaged, based on their reservations about industries like tobacco. To cater to these clients, RegentAtlantic suggests strategies and investments that address their concerns and strive to keep portfolios diversified.

The original SRI used so-called negative screens to eliminate industries and corporations that conflicted with an investor’s values. As consideration of environmental, social and governance (ESG) factors gained traction in the mid-1990s, managers began adopting positive, or inclusive, screens to identify companies with strong social and environmental track records.

Given the variety of approaches available to investors, it’s not surprising that RIAs’ customers differ on how to make SRI part of their portfolios. Mick Bleyle, vice president at $14 billion Innovest Portfolio Solutions in Denver, says some of his clients want negative screens; others prefer positive, inclusive screens or wish to explore impact investing.

Screening out broad categories like tobacco and weapons remains the easiest SRI strategy to implement, but Kapyrin warns that imposing multiple negative screens can reduce diversification opportunities. Bleyle and CTC myCFO’s Finney report that more of the investment managers they work with are including positive screens in their research, which reduces the RIAs’ workload.

One common criticism of socially responsible investments is that they fall down when it comes to financial reward. But such investments produce competitive returns, according to the Morgan Stanley Institute for Sustainable Investing, which last March published a report examining the performance of more than 10,000 open-end mutual funds and some 2,800 separately managed accounts. One finding: For 64 percent of the periods studied from 2007 to 2014, sustainable mutual funds had equal or better returns and equal or lower volatility when compared with their traditional counterparts.

The authors’ conclusion: “We ultimately found that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.”

At Innovest, more clients are moving toward impact investing, Bleyle says. In most cases, though, that interest hasn’t translated into dollar commitments. Some clients have decided to keep making impact investments through their private foundations’ grants, but others are unsure how proceed when it comes to their portfolios.

“We have clients that have been discussing allocating a percentage of their portfolio to impact investments,” Bleyle explains. “We have clients who have been discussing using impact investment loans as part of their fixed-income allocation.” In early March, to help them decide, Innovest is co-sponsoring CO Impact Days, a three-day Denver event that will connect philanthropists and investors with social ventures.

Although managers may consider impact investments at a global level, RIAs’ clients often seek local opportunities, where they can play a more active role, Bleyle says. He’s found that his firm’s diverse client roster, which includes nonprofits, can serve as an informal network for donors and local organizations seeking funds: “It makes for a great opportunity to match some of those pairs of individuals, both those that are seeking capital and those that are looking to invest the capital.”

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