Asset Allocation: Investing For Impact

Elite Entrepreneurs are cutting relative exposure to their own businesses and expanding into socially beneficial asset classes as they seek to achieve maximum positive impact from their wealth.

Entrepreneurs’ exposure to their main business now accounts for just 17% of their net wealth versus about 25% three years ago, according to the findings of the 2018 BNP Paribas Entrepreneur Report.

This increased portfolio diversification comes against a push-pull backdrop, where increasing uncertainty associated with tech-based industries pushes investors to spread their risk, while a sharpened focus on seeking positive impact is drawing today’s business founders to target responsible investments.

So why are respondents going underweight on their own businesses? Part of the answer may lie in the changing demographics of entrepreneurs, which is skewing younger as technology reduces the barriers to starting a business, also enabling digitally-native business owners to rapidly accumulate wealth.

Of the 2,706 company founders surveyed for the BNP Paribas report, 40% were “Millennipreneurs” – those aged 35 or under – 44% were Generation X, or 36-54 years old, and 16% were “Boomerpreneurs” aged 55 or over.

Millennipreneurs tend to specialize in technology, with 64% of them having made most of their wealth in the online, mobile and digital sectors, and 51% of them getting rich predominantly from IT. These industries can provide faster returns than longer established industries, but also carry more risks and uncertainty – factors that have prompted company owners to spread their wealth wider.

Motivated for good

Respondents to BNP Paribas’ report revealed Real Estate and Cash each account for 14% of their assets, while investments aimed at making a positive societal impact now represent 18% of entrepreneurs’ holdings. Of this, 7% is in Socially Responsible Investments, 6% in Philanthropic endeavours and 5% in Angel Investments.

This motivation to do good is even more pronounced among Millennipreneurs, who allocated 21% of their wealth to the latter three asset classes, versus 16% for GenX entrepreneurs and 12% for Boomerpreneurs.

“People are voting with their wallets, and spending less on conspicuous consumption and more on what they care about. Today’s entrepreneurs are less materialistic,” adds Paulson, whose primary business, MarketBeat, has attracted over 500,000 subscribers to its web-based research tools and operates a network of financial news websites that achieve over 4 million page views per month.

The 32-year-old is also a philanthropist, being a co-founder of the GoGo Photo Contest, which has raised more than $6.5 million for animal charities since launching in 2013.

Investments that make a difference

Such activities are increasingly common among business owners. Myleen Verstraete is a Belgian entrepreneur and an impact investor, who most notably supported The Conscious Collection clothing line, by fashion designer MC Collignon.

Over two-thirds of the collection is made with Waste2Wear fabrics from recycled plastic bottles, while its social programme Waste2Weave empowers women in Asia to escape poverty.

“For the sake of my children’s generation, I feel if I can make a difference through my investments, then I must,” says Verstraete, who also works with a microfinance development fund supporting sub-Saharan Africa businesses.

“If we are not willing to provide our capital and support these entrepreneurs, then who will?” says Verstraete. “Fund investing has been a more straightforward approach. I allowed myself to spread my risk and expand my impact.”

Greater investment options have also given entrepreneurs more freedom to invest in companies that match up to their own ethical standards, an opportunity Paulson has eagerly seized, making nearly 40 early-stage, angel investments in companies including Dollar Shave Club and Wikia.

“When I think about my business and the companies I invest in, I’m more concerned with whether these companies are doing legitimate good in the world and whether they provide a valuable product or service,” adds Paulson. “Are they a net positive?”

Those final five words succinctly sum up the mind-set of today’s Elite Entrepreneurs, for whom a swelling bank account is no longer the ultimate signifier of success – a lasting legacy of improving society counts for far more.

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