Citi Private Bank

Browser Requirement

To best view Citi Private Bank's site and for a better overall experience, please update your browser to a newer version using the links below.


Debunking social investment myths

By Edward V. Marshall, Director, Global Family Office Group

February 12, 2019Posted InInvestments and Family Office

Is it possible to invest for financial gain while simultaneously trying to serve the greater good? Traditionally, these two goals were considered mutually exclusive. In recent years, however, the interwoven approach of 'social investment' has grown significantly in popularity. Having started out as a relatively niche activity and approach, social investment has moved into the financial mainstream over the last decade. Despite this, investors are often unsure of what it really means and the wide variety of approaches it entails.

Wealthy families - and their family offices - are among the prominent investors who are now showing much greater awareness and interest in social investment. Over the last few years, family offices are increasingly exploring whether social investments are appropriate for the families they serve for a number of reasons.

Firstly, family offices are now seeing social investment as capable of matching or outperforming returns on traditional investments – see chart below. Secondly, as family offices tend to have greater autonomy and innovative ability in their investment decision-making, they may have more freedom to explore an ever growing range of social investment options. Thirdly, family offices are finding they can use social investments as a way to engage the next generation of family leaders, as millennials tend to be committed to solving social problems through the power of their investments in addition to their traditional philanthropy.

However, even though there is a growing interest among family offices, much like anything ‘new’, there are many misconceptions as to what social investment actually entails and what it does not. It is important to address these social investment myths to provide family offices with clarity when they are assessing whether this is a suitable opportunity for the families they serve.

We have identified the four most common social investment misconceptions and explained why we do not think they should give family offices pause:

1. 'Social investing is just philanthropy'

Social investments lie along a 'return and impact’ spectrum. Philanthropy - often in the form of grant making with no expectation of a financial return - lies on the very far right end of this spectrum.  While social investments can be part of a philanthropic capital deployment strategy, the two activities are not one in the same.  Philanthropy is therefore distinct from social investing, which seeks both a financial and social return.


2. 'Returns must be sacrificed in order to generate a social impact'

Despite the large body of evidence to the contrary, a belief persists that social investments are inherently prone to below-market or 'concessionary' returns. The Global Impact Investing Network (GIIN) explored this in its 2017 Annual Impact Investor Survey, finding that 66% of impact investors were already pursuing and expecting market-rate risk adjusted returns for their impact investments.More than 90% of such investors were achieving financial performance that met or exceeded their expectations. While family offices represented a small part of the sample size addressed in this report, more than 80% of family offices self-identified as 'market-rate investors.'


3. 'Social investing is only available for private equity (PE) or direct investment deals'

 Social investing vehicles are diverse and are certainly not limited to private equity and direct investment opportunities. According to the 2017 GIIN Annual Investor Impact Survey, nearly 50% of participants’ assets under management were deployed in non-PE and non-direct investment opportunities.2


4. 'Social investing opportunities are primarily concentrated in emerging markets'

Social investing is not limited to opportunities in developing economies. The US and Canada are home to 40% of global assets under management for impact investments across asset classes. In second place is Western, Northern, and Southern Europe with 14% of global social investment assets.3


Aligning your investment activities with personal values and interests can help enable you to seek financial gain while serving the greater good. We believe that you can invest in a manner that aligns with your values while maintaining quality and improving investment outcomes. At Citi Private Bank, we call this simultaneous pursuit of financial returns and societal benefits ‘Investing with Purpose’ (IwP). 

To find out more about how family offices can get started with social investment click here to read our white paper: Why family offices are increasingly exploring social investment opportunities.


Mutual funds with high ESG scores delivered better risk adjusted returns4


1 2 3   The Global Impact Investing Network, ‘2017 Annual Impact Investor Survey’, 2017

4 Source: Morningstar; January 1, 2010 – December 31, 2018. Past performance is not indicative of future results. Office of the Chief Investment Strategist, Citi Private Bank. We used data on 528 US equity funds with data back to 2010 from the Morningstar database. Of these, 58 were assigned to the high ESG score universe based on Morningstar’s methodology; all others totaled 470 funds. We compared the high ESG funds and all others on an equal-weighted basis for return and standard deviation. The Sharpe ratios shown were calculated on the aggregated returns and standard deviations. Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. A portfolio with a higher Sharpe ratio is considered superior relative to its peers.