Investment Strategies

EXCLUSIVE: Putting Personal Values Into Investing - Debates From The WealthBriefing London Summit

Tom Burroughes Group Editor London 15 June 2015

EXCLUSIVE: Putting Personal Values Into Investing - Debates From The WealthBriefing London Summit

The recent WealthBriefing Summit in London held a discussion around what are sometimes called "investments of passion" and the debate highlighted the breadth of issues involved.

Putting personal passions and values into investments is increasingly achievable as the infrastructure allows people to realise goals as varied as seeding film start-ups, encouraging “green” energy or financing art collections in innovative ways, a conference heard recently.

While the terminology for such investments varies considerably and can be confusing – monikers such as “investments of passion” or “alternatives” appear – there is a common thread to these areas: the fact that simple profit/loss is not a sufficient reason to back a venture.

Such were the ideas up for discussion at the recent WealthBriefing Summit 2015 in London, held in the heart of the City financial district. Speakers at a panel around the title “Putting The Personal Into Portfolios: How To Align Investment s With Clients’ Values and Interests” were Kirsty Bell, managing director and creator of Goldfinch EIS and SEIS Investments and partner of Nyman Libson Paul; Tomas Carruthers, chief executive, Social Stock Exchange; Jean-Yves Chereau, partner at J Stern & Co; Harvey Mendelson, co-founder and managing director, 1858 Ltd Art Advisory; and Wendy Spires, who was chair of the panel and is head of research at WealthBriefing.

Sponsors for the conference, held at London’s Guildhall, were Appway; Dubai International Financial Centre; Objectway; smartKYC; ProFundCom; Standard & Poor’s Money Market Directories, and K2.

The art market is arguably the most obvious “passion investment” and despite its growth continues to represent a number of challenges for the unwary as well as a mass of opportunities, said 1858 Ltd Art Advisory’s Mendelson.

“Art is the ultimate investment of passion….people will buy a work of art out of love and also hope it goes up in value. It is much larger in terms of choice than people might think," he said.

People are not just buying art in record-breaking auctions. There is also a growing online and buoyant private market for art, he said.

“Returns on art have not in the past always been fantastic…holding periods can be quite long; and there are storage and logistics costs to take into account,” he said, noting that clients must be made aware of issues such as attribution and authenticity (i.e., beware of fakes).

The market is “not regulated and subject to inflated prices and counterfeit goods”, and a good advisor will assist in navigating these risks Mendelson said. He added: “Part of our role is to help clients avoid these pitfalls when purchasing important works. By conducting the appropriate due diligence for the client and ensuring they acquire works at a fair price, it is then more likely that pieces will appreciate in value over time.”

Doing good, doing well
Social Stock Exchange’s Carruthers addressed the question of whether investing in ways to avoid certain behaviours and sectors, and embrace more ethical business models and sectors, can robustly and sustainably achieve superior returns. “There are opportunities for impact and ethical investors and they can outperform the market. The challenge is to structure the buy-side for that to benefit the client,” he said.

However, there remain hurdles in front of such ethically-driven impact investing, Carruthers said. “There is a lack of brokerage structures," he said, adding that the market for impact investing lacked the infrastructure to really take off.

“When you meet the underlying investors they don’t understand why wealth management hasn’t responded,” he said, referring to the relative lack of movement towards impact orientated strategies and services.

A person investing for a period of 10 to 20 years will be more interested in the composition of a board and the values of a business than a short-term investor thinking about the next quarter, Carruthers said. “It is not just an issue for millennials,” he said, picking up on the question of whether impact investing is a generational issue. “Retirees have the time to think about what to do with their investments. It is an issue for those in their 60s and 70s and not just for those in their 20s and 30s.”

What sort of innovations would Carruthers like to see in such investing?

Carruthers said he would like to see more index-tracking and low-cost impact-based products in the sustainability space. There are relatively few of these at the moment, he said. Carruthers talked about the attractions of the Social Investment Tax Relief as a “cost-effective incentive to enter the social impact investing space”.

Another development, he said, is the recent guidance issued by the Law Society on how charitable objectives can be fitted into investment goals as part of a broader set of fiduciary duties. “That will begin to have a significant effect,” he said. 

It’s personal
Chereau, partner, J Stern & Co, was asked to sketch how people’s passions and philosophies should shape their investments. “At J Stern & Co, passions and philosophy have been combined in our values: we invest in real assets for the long term using a clear, simple and transparent investment process. We focus on the quality and value of those assets and are able to do so thanks to our in-house fundamental research. Beside this, we also believe that some niche investment opportunities, still in real assets, can be integrated within investors’ allocation, including passion investments. For example, J Stern has developed a capability in sports finance which can fall into the passion category for some clients,” Chereau said.

Chereau was also asked about the trade-off between passion investing, risk and return. He replied:  “Hopefully you can have your cake and eat it.” The sport funding strategy we mentioned satisfies both the passion angle as well as providing investors with very attractive non-correlated returns. There is this perception in the market that personalised investments with philanthropic or ethical bias suffer lower returns. It is not always the case and largely depends on the managers or the project selection.

“Investments in niche strategies with real assets backing, like art, collectors’ cars and wines have yielded good returns over the long term. The key here is the simplicity and transparency of the structure and process used. In this game, you can have the best of both worlds,” he added.

Making movies, making returns
Bell, from Goldfinch EIS & SEIS Investments and Nyman Libson Paul, said that she and her colleagues have been “inundated with projects from the film industry”.

One trend is that some investors, keen on films and also attracted by the tax reliefs of enterprise investment schemes and similar structures, imagine that they have found the “Holy Grail” of an investment, she said. However, Bell cautioned that the tax efficiency of such structures should not be the dominant focus – the same underlying business case remained the most important driver.

Asked about how such “passion investments” appealed to certain age groups, Bell said that seed EIS and other structures were an effective way to draw in interest from the younger generation of investors.


(Other conference sessions from this event will be published here in the coming days.)

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