Millennials want their investments to create social impact. How has Wall Street responded?

In terms of giving trends, we are finding a significant increase in activity driven by millennials, both individually and in the firms representing them. In a recent study, 93% of millennials stated that a company’s social impact is key to their decision whether to invest. At the same time, $30 trillion of capital is set to be transferred from baby boomers to millennials over the next three decades.

As a result, many financial institutions have been scrambling to develop products to meet millennial desire, as are corporate social responsibility arms of large institutions. The wealth advisory sector has been particularly active, with Vanguard and Fidelity both growing large charitable donor-advised funds for individuals.

In regards to hedge funds, the hedge fund industry has always embraced philanthropy much more so than other alternatives such as private equity and venture capital; foundations such as the Robin Hood Foundation and the Simons Foundation, both started by hedge fund professionals, have raised hundreds of millions for charity. Historically, giving was dominated by those individuals who had built massive fortunes through the establishment of legacy foundations.

However, over the past decade, there have been two important shifts in giving in the hedge fund industry: a) introduction of more in-house donation programs, to promote employee giving with a variety of matching schemes employed; and b) introduction of co-operative foundations by philanthropically minded hedge fund professionals in the industry. Both of these two shifts are most prevalent in firms run by younger, millennial generation investors. Additionally, it is clear that there is growing desire from investors for their hedge fund managers to not only make returns, but also to give back: in a 2016 study of 489 hedge funds, hedge funds that publicly donate to charity experience 20% greater annualized net asset inflows in the following year than similar non-donating peers.

So how have hedge fund managers historically engaged with charities, and how are they responding to millennial trends? More on that next week.