Big banks could do better on impact investment

Major financial houses failing to meet demand for dual bottom-line investments, says head of philanthropy at UBS

The global head of philanthropic advisory at UBS, the Swiss private bank, has said that major financial institutions are failing to meet demand for impact investment platforms from philanthropists and private foundations.

“Impact investing is a difficult proposition and we see a lot of demand that doesn’t translate into action,” said Silvia Bastante de Unverhau.

The need to measure social impact, on top of ensuring financial returns, requires a high level of active management and supervision, she added. And as funding levels in impact investing are typically small compared to conventional wholesale banking transactions, banks are shying away from impact investing operations that might tie up resources but make barely a mark on multitrillion-dollar balance sheets.

“A couple of funds at UBS over the last couple of years managed to raise $50m, which sounds like a huge amount of money but is in fact peanuts in an industry that works in the trillions,” she said. “One of those funds was for SMEs in sub-Saharan Africa, and to sell a product like that took so much work.

“A bank like UBS, and the majority of banks, are not set up to do relatively small investments, they’re set up for big products,” she added. “So there is in theory demand [for impact investment] but in reality there are not enough products, or at least the people who have the products cannot put them on the platform of the big banks.”

Some 205 investors invested $22.1bn into nearly 8,000 impact investments in 2016, and plan to increase capital invested by 17 per cent in 2017, according to a Global Impact Investing Network (GIIN) report released in May. While investment is growing, at an estimated $114bn market, it is still represents a fraction of all managed capital. 

A breakdown of survey respondents showed the largest category was fund managers (67 per cent) and foundations (11 per cent). Banks comprised just 4 per cent of the sample.

“If you ask wealthy people what keeps them awake at night, it’s not interest rates. It’s about how they give meaning to their money.”de Unverhau also noted a growing demand among wealthy donors for collaboration and co-funding - a trend that is reflected in the findings of the most recent Arab Giving Survey, where 53 per cent of high-net-worth respondents said they would consider gifting larger sums if their donations were matched.

“When we survey our philanthropy community, which is a group of more than 350 philanthropists and impact investors from all around the world, their key concern is how to find co-funders and collaborators,” she said. “My interpretation of this is that they want to find other people to support the same projects, as essentially it’s a sign of quality: as innovation is so difficult, if I can convince somebody else that they should support the things I’m supporting, then possibly I’m doing something right.”

de Unverhau was speaking at the Stockholm Philanthropy Symposium, an annual gathering of business leaders, NGOs, government, academia and philanthropists in the Swedish capital. She was joined on stage by Jasmijn Melse, a philanthropy advisor at Dutch private bank ABN AMRO MeesPierson, who urged would-be philanthropists to seek professional guidance when starting out on their giving journey.

“If you ask wealthy people what keeps them awake at night, it’s not interest rates,” said Melse. “It’s about how they give meaning to their money. It’s about legacy: what are they going to leave the next generation?

“Yet philanthropists don’t realise how difficult it is to do good,” she continued. “When we survey people who are philanthropically active, 90 per cent say they don’t need advice. If you start a business you need a business plan, so if you start giving then why wouldn’t you need a giving plan?”

“People have no idea that philanthropy advisers exist as a profession,” agreed de Unverhau. “If they have a legal problem they consult a lawyer, and if they have a problem with their finances they go to an investment adviser, yet it’s not automatic that they will seek out a philanthropy adviser if they’re not sure their giving is working as best it could.”