The Future Of Wealth, Asset & Investment Management

May 14, 2010

 

Asset, wealth and investment management firms will soon encounter a strategic inflection point - whether or not to move beyond sustainability and embrace the investment, business, humanitarian and environmental thesis of People, Planet, Prosperity. This latest evolution in risk/return management is growing exponentially on a global scale, but it is not a hurdle, it is in fact a huge opportunity.

 

It is probably fair to assume that most leaders in asset, wealth or investment management firms would like to:

  • Satisfy client demand for conforming/compliant assets that generate sustainable market (or above) returns;

  • Reduce investment risk;

  • Use additional screens to identify the future’s non-correlated best performing financial instruments, real assets, or portfolio companies;

  • Efficiently raise new funds or gather additional assets;

  • Avoid investments in what could become stranded assets;

  • Turn around existing stranded assets that are currently non-compliant/conforming;

  • Comply with pending investor sustainability audits and/or investment mandates; and

  • Increase the value of their existing portfolio companies.

All of the above can be achieved by hiring an appropriate and experienced Chief Sustainability Officer.

 

The market is witnessing the latest evolution in investing which uses additional (as overlays to existing traditional financial metrics) environmental and humanitarian risk/return metrics and screens to identify which financial instruments, real assets and portfolio companies will produce the highest long term returns. This is nothing more than a reflection of the fact that the future’s highest and most sustainable investment returns and corporate Profits will be generated via an embracement of the principles underlying the need to supportPeople and Planet.

 

It is a known fact that endowments, foundations, private family offices, and now plan sponsors are:

  • Shifting assets into compliant or conforming investments across all sectors and asset classes (over $5Trillion since 2007 as reported by Ethical Markets Green Transition Scoreboard® );

  • Mandating managers and advisors embed sustainability into their firms;

  • Insisting on the use of additional risk/return metrics and screens that take into account the value of environmental and humanitarian initiatives when identifying future value;

  • Using diligence on stranded assets as additional screens for what not to invest in;

  • Hiring Chief Sustainability Officers to audit the sustainability programs of their managers and advisors and even certain portfolio companies.

If the above is not enough impetus to suggest a paradigm shift is ahead, the Millennial demographic will cause the tipping point. There are over 80,000,000 Millennials in the US (representing 4.4% of the global Millennial total) and over the next 25 years they will inherit over $30 Trillion. However, the statistic that asset, wealth and investment managers should take note of is that over 60% of US Millennials believe that corporate profits and investment returns should be values based. In other words, over 48,000,000 decision makers, leaders, investors, donors and consumers representing the majority of the largest transfer of wealth in history are going to demand change. 98% of them will NOT use their parents financial advisors.

 

If asset, wealth and investment management firms wish to service this looming (and wealthy) demographic they are going to have to move way beyond sustainability and:

  • Embed the business, humanitarian and environmental principles of People, Planet, Prosperity into the very core of how they run their organizations; and

  • Use the investment thesis of People, Planet, Prosperity to identify the investments they offer their clients;

The industries that have already moved beyond sustainability and hired a CSO know that the role has become one of the most important and impactful positions within the C-Suite. In fact, companies are even integrating marketing into the sustainability function leading many experts following the asset and wealth management industries to believe that the CSO will become a vital factor in raising funds or gathering assets in the future.

 

“The most important strategic decision any executive team will make during the next five years is whether or not to embrace the investment and business thesis of People, Planet, Profit. Those that do will succeed, those that do not will be forced by consumer and investor collaborations to change or go out of business”.

 

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