There is often a rather envious and ill-informed characterisation made of the uber-rich that goes: “Oh, so-and-so has so much money, they don’t know what to do with it.” It remains doubtful such an observation was ever true but even less so now, given the wealth of many ultra-high-net-worth individuals is assiduously safeguarded by private wealth management firms known as family offices.
Aside from wrangling complex financial structures, family offices are trusted to handle everything from sensitive matters such as taxation and succession planning, to more mundane ‘life admin’ like allowances and household budgeting. Of growing importance to many wealthy families, however, is their philanthropic ventures.
Nowadays, charitable pursuits overseen by family offices fall under two loose categories: philanthropy and impact investing. The former is defined as any benevolent act extended to a ‘good cause’ and might entail brokering a large donation or setting up a foundation. Alternatively, impact investing refers to sinking capital into an equally noble purpose-driven business – the primary difference being that, while it should still give rise to a positive social or environmental outcome, it is expected to result in financial gain.
“Impact investing is a longer-term model which can have a much bigger outcome, as it allows you to generate a return and reinvest to make more impact. It’s the gift that keeps on giving.”
- Julian Marwitz
Although turning a profit is integral to any impact investment, it is driven more by purpose than greed. Most family offices report the overriding intent is for profits to be reinvested or diverted into other altruistic enterprises. In other words, multiplying positive outcomes and ensuring any philanthropic act becomes self-sustaining instead of ending when the money runs out.
Julian Marwitz, Principal of the Marwitz Family Office, believes that while straight philanthropy undoubtedly does great good, “it is limited in its capabilities to make wholesale change. It has to be consistently replenished. Whereas impact investing is a longer-term model which can have a much bigger outcome, as it allows you to generate a return and reinvest to make more impact. It’s the gift that keeps on giving.”
In that sense, impact investing is aligned with the philosophical movement known as effective altruism. Championed by leading contemplatives Peter Singer and Toby Ord, effective altruism means “using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis”. It can lead to giving in ways that might seem implausible at first glance, yet ultimately prove the most impactful.
One celebrated example was the work of two economists who carried out a study on the Kenyan education system. Teachers were perplexed over why school children were testing far below standard scores. Improved textbooks, alternative teaching methodologies, smaller class sizes and other tactics failed. In the end, the two economists deduced that by simply treating children for intestinal worms it would exponentially increase both attendance and test scores. It worked. Consequently, the Deworm the World initiative was formed and is now ranked as one of the most cost-effective, impactful charities in the world. Meanwhile, the wellbeing, education and career prospects of an entire generation has been transformed for the better.
We see how effective altruism offers a salient lens for investing impactfully. Consider the story of a modest family office based out of Munich. In 2019, Athos Service held the majority share of an obscure laboratory named BioNTech. When COVID-19 hit, BioNTech would go on to hone the world’s most effective coronavirus vaccine, partnering with Pfizer for large-scale manufacture and distribution. In the US alone, they vaccinated nine billion citizens.
And now, that one savvy investment is not only tipped to single-handedly boost Germany’s gross domestic product by 3.7 per cent this year, it has directly helped global economies to rally in the wake of the pandemic, prevented mass hospitalisations and saved millions of lives. Talk about an impact.
“If doing the most you can for others means that you are also flourishing, then that is the best possible outcome.”
- Peter Singer
Not to gloss over Athos Service’s gobsmacking profit, of course. By late 2020, its single holding of BioNTech stock was valued at more than €10.5 billion. It is worth noting by comparison that the World Bank donated an equal amount towards vaccinating people in developing countries. While there is no doubt this act of incredible generosity did untold good and saved countless lives, it is clear the multibillion-dollar profit made by just one family office had an exponentially greater positive impact than the World Bank giving away the same figure.
This is a clear example of how impact investing can work on a grand scale, and as Singer himself once noted, “If doing the most you can for others means that you are also flourishing, then that is the best possible outcome.”
None of this is to suggest either ‘trickle-down economics’ works or that philanthropy is dead. Far from it. Single acts of generous benefaction still play a vital role in changing the world for the better. Yet modern philanthropy is evolving by overlapping with (and being informed by) impact investing – in particular, due to the rigour required in assessing the absolute best way to create positive outcomes and sustain them. Be it renewable energies or recycling startups, to medical or agricultural breakthroughs, to new game-changing technologies, trusted family offices are now investing impactfully on behalf of their clients to tangibly maximise the wider societal or environmental benefits.
So, when next opining on the philanthropic pursuits of any ultra-high-net-worth individual, perhaps it is wiser to observe, “Oh, so-and-so has so much money, they are ensuring it is being deployed wisely to effect the most amount of good.” Happily, that is happening.