In an unspectacular office building in a bustling business district of San Francisco, there is company with a secret. New Island Capital is a leader in a growing field that targets investments for their environmental or social impact. New Island defines itself as both “100 per cent for profit and 100 per cent mission-driven”.
Eli Mitchell-Larson, a self-described “save-the-world” type, had recently graduated from an Ivy League university and was interested in working in the environmental sector. With no experience in finance, a job offer from New Island, which focuses on providing community-based solutions to environmental and social problems, seemed like a dream gig.
“I was like, of course I want to learn how to invest money profitably and make an impact,” he says. He joined a team of seasoned investment professionals, with degrees and MBAs from the best business schools and tenures at leading banks, private equity firms and tech companies. Also among them were people from non-traditional academic backgrounds — specialists in developing-country microfinance, forestry, fisheries and wildlife management.
It was not until Mitchell-Larson’s first day when he signed the company’s non-disclosure agreement that he learnt New Island was not a traditional impact investment fund, though that is its public image. Instead, it is a family office.
Revered among industry insiders, the discreet operation recruits top university and investment talent and is funded entirely by one, top-secret, benefactor. New Island does not disclose its investments, nor how much money it manages, but multiple sources say the sum is in excess of $1bn. Family office operations such as New Island are increasingly common, as tremendous private wealth is consolidated around the world.
Other billion-dollar family offices doing impact investing include Omidyar Network, the family office of eBay founder Pierre Omidyar, and the Pritzker Group, the investment arm of the Hyatt hotel group-owning Pritzker family.
While the number of family offices managing assets at this scale is small — assets under management of a family office average about £300m, says Heather Jablow, head of global private client practice at Cambridge Associates — the trend of family offices turning to impact investing is growing — and quickly.
Some $22.89tn in assets were held globally in socially responsible investments as of 2016, up 25 per cent from 2014, according to the Global Sustainable Investment Alliance. Many family offices see impact investments, such as environmental funds and fossil fuel alternatives, as logical, smart investments for the future.
“If it were just about values, it wouldn’t have the legs that it has,” says John Goldstein, a managing director with Goldman Sachs Asset Management, who focuses on impact.
As impact investing becomes a priority for younger generations, family offices are becoming a more desirable destination for recent graduates looking to work in finance. Deserved or not, “it’s almost like family offices have this kind of halo now because they’re doing sexy things with their capital”, says Lee Hutter, US western regional head of wealth management at Deutsche Bank Wealth Management.
“It’s no longer cool to be a high-flying financier in New York,” says Mitchell-Larson. He says he wants to believe this is because the world is changing and people want to make a difference, but “the cynical take [on impact investing] is that that’s what’s become cool and that’s the prevailing culture”.
When New Island Capital was hiring five to seven years ago, it saw “a lot of people who wanted private investing experience who would make a little noise about why they wanted to do impact”, says Chris Larson, chief executive. Today, impact is the priority for people looking for opportunities at the company.
When Larson and his colleagues speak at US business schools about impact, he says, “the number of people interested and the mainstreaming of impact investing has been remarkable, as has the quality of talent and backgrounds coming out of really every programme, especially non-Ivy League business schools”.
Stanford Graduate School of Business in California has experienced such a spike in the past five years in students interested in impact investment that it has added two new investment programmes, an impact lab and “experiential learning” through an impact fund. The impact fund programme has 40 slots and more than a quarter of the annual intake of more than 400 students submit applications. “This is a field in full expansion,” says Bernadette Clavier, director of the Center for Social Innovation at the business school.
For a long time, though, jobs were so rare that, says Clavier, it was “a long-term play”.
A 2016 study of Stanford alumni who went to work in investment found that they took an average of 3.4 roles before they landed a job in impact investing.
Chanelle Lansley is a second-year student at Wharton business school in Philadelphia. More than 200 members of her cohort are involved in the impact investing group and competition for roles in the sector is fierce. Lansley, who spent this summer working for Omidyar Network in San Francisco, says: “I was drawn because of the way they invest. They look at a continuum of returns, not just focusing on high returns or no returns.”
Family offices are not bound by the same pressures as venture capital firms or hedge funds. While the latter focus on delivering returns for investors, the former can instead focus on the family mission, often with longer time frames. Family offices can be more nimble because of lower regulatory requirements and overheads and “you can forget about the whole investor relations piece, which is very time-consuming”, says Catherine Grum, head of family office services at business advisers KPMG in London.
Indeed, the freedoms family offices enjoy have led several hedge fund managers to close their funds and convert them to family offices. Leon Cooperman, head of Omega Advisors, converted his fund in July, following Doug Hirsch of Seneca Capital, Michael Platt of BlueCrest Capital and John Thaler of JAT Capital.
Lansley says she received more hands-on experience of deals at Omidyar than many of her classmates did at their summer internships. She says of the family office that “there were fewer restrictions and a lot of opportunity to explore and truly look at what would have impact”, referring to the different types of expertise that can be applied to solving different kinds of social problems.
Clavier says she sees students at Stanford trying to position themselves to do impact investing, a challenge since so many investment companies and family offices are still opaque about the skills they are looking for.
Larson says that when New Island Capital is recruiting, a good impact investor “has to care about the mission or it won’t be a compelling place to work in the long run”.
But Mitchell-Larson says many other family offices are not clarifying whether “they want hard-nosed Wall Street people or salt-of-the-earth, touchy-feely people and not everyone can act both of these roles”.
“It’s the convergence of two very different skill sets,” says Clavier. Family offices are less well-known among high-flying graduates, she says, “because they are not always plugged into traditional recruiting networks”.
Many family offices have a reputation among graduates of being old-world for a reason.
“Back in the day — and some are still living in the day — they were considered old and stodgy, concerned more with staying rich than growing the wealth and it was not going to be a place you could learn or grow,” says Angelo Robles, founder of the Family Office Association in the US.
One former family office employee says he joined because of an affinity for the office’s mission and the hands-on pure investment experience, but was unprepared for the depth of the family politics he had to negotiate. Family offices are not always structured to provide the same career growth, or even stability, of more mainstream asset managers with established pathways for graduate recruits, says Hutter at Deutsche.
“But the large ones, with multiple billions of dollars under management and a clear mission, are starting to attract talent away from us and from MBA training grounds.” What is important, he says, is that they have an institutional scale and level of organisation to be able to provide a diversity of opportunity over time for young talent.
But family offices’ appetite for impact is not just an opportunity for graduates. “Top talent want to apply their skills and grow in a way they think matters. This is an amazing long-term skills source for the industry,” says Goldstein at Goldman Sachs.
Sometimes family offices hit upon an investment strategy that is so successful that they look to create funds around that strategy. Take the Wimmer family office, for example, which takes a three-pronged approach to investing. Its investments include property, SME lending, exchange traded-funds and investing in external hedge funds to yield what it calls an attractive return for its level of risk.
“This will increase, as talent pours into the space,” says KPMG’s Grum. “If you’re going to be remunerating and rewarding the individuals you’re hiring, creating a fund vehicle that they can invest in is a good way of doing it.”
For family offices looking to ensure the continued prosperity of their operations by hiring young talent, Goldstein advises: “You can punch way above your weight in terms of talent if you’re doing impact investing.”
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