Investing for good gains ground among GCC youth

Experts predict Gulf family businesses will drive uptake of impact investing as millennials look for profits with a purpose

Impact investment in the GCC is set to rise as millennials seeking both financial and social returns take the reins of the region’s family businesses, industry executives said.

But the market still has some way to go in terms of gauging social outcomes of investments amid a “fluid definition” of impact, said Rachel Pether, an advisor with the US-based Sovereign Wealth Fund Institute.

“I see significant alignment between family business in the Gulf and impact investment,” Pether said during a panel event at the Family Office Forum in Dubai. “As intergenerational wealth begins to transfer… the increasingly socially-aware younger population is keen to leverage businesses’ long-term investment ethos to make a difference.”

“The menu of choices is no longer limited to local giving and family foundations"Impact investing, a term coined in 2007, grew out of the desire by socially savvy individuals to both turn a profit and make progress against pressing global problems.  

Its popularity has soared in recent years as mainstream financial institutes such as banks, insurance companies and fund managers have jumped on the bandwagon.

Gulf family offices, which generate more than $100bn in annual revenues, already direct 3.5 per cent of their wealth into social impact investing, according to a report by Ernst & Young; more than their counterparts in the US and Europe.

A small proportion of GCC family business owners invest more than 10 per cent of their wealth through impact investments, the report noted.

“The menu of choices is no longer limited to local giving and family foundations. [Impact investment] offers a prospect of effective social problem-solving through investment vehicles,” the report said.

Shainoor Khoja, managing director of Better Business Enterprise and moderator of the panel, said family offices increasingly seek to leave a broader legacy.

“When you consider the geography in a four-hour radius from the UAE, the need is immense in terms of infrastructure, jobs and capacity building,” she said. “Any dollar value invested here has a multiplier effect providing both an ROI for the business as well as the social return.”

Privately held companies are often pioneers of investment trends, having fewer stakeholders to gain approval from.

“We don’t have a billing department, an accounts department – our funding all comes directly from [our founder] PNC Menon,” said Raj Chinai, managing director of Sobha Group, a real estate conglomerate with interests in the GCC and Indian. “The way we look at impact is laser-focused on the question of how can we create dignity.”

Reza Dari, CEO Global Investment Bank, said corporates can bring both funding and their expertise to bear on the social sector to support long-term impact. The Dubai-based finance house has pledged this year to reinvest 50 per cent of asset fees from its wealth management arm towards sustainable causes and social development projects.

“One of the reasons we’re doing this, is to sustain some of the initiatives that we initially fund,” he said. Rather than nonprofits needing to approach donors annually for money, a reliable income stream would aid in better use of assets, he added.

“It may very well be that instead of funding 10 schools in a refugee camp in Jordan, we just do one, but we keep that going all the way through. As we expand our capital base, we can add another one, and another one.”

Impact investing rose to $15.2bn globally in 2015, from $10.6bn in 2014, according a report by the Global Impact Investing Network. The report found family offices and high-net-worth individuals together accounted for 13 per cent of the total capital invested.