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Two significant shifts are reshaping the private funds and investment industry today. Millennials and Generation Z consumers, their values and how these values impact the way they approach investing.
Deloitte’s recent survey of over 16,000 millennials and Gen Z individuals found that millennials (those born between January 1981 and December 1994) and Gen Z (born between January 1995 and December 2002) view climate change and protecting the environment as humanity’s most pressing challenge.
This is significant for a number of reasons.
Firstly, the values of these two demographics are already affecting the way companies do business around the world. Demands to invest ethically and responsibly are already being placed on companies across different sectors of the global economy. From divesting from so-called “sin stocks” like tobacco, gambling, oil or weaponry to paying a living wage, the pressure on companies to “do the right thing” has never been greater.
Secondly, most millennials and Gen Z are now full-fledged members of the workforce. With most baby boomers (born between January 1946 and December 1964) now entering retirement, the influence of the younger generations is only set to increase.
And thirdly, we’re on the cusp of a major intergenerational transfer of wealth. According to State Street Global Advisors, baby boomers in the U.S. are expected to transfer between $30 trillion and $41 trillion of assets to Generation X (born between January 1965 and December 1980) and millennials between now and 2048. If we extend that to 2061 and include Gen Z, an additional $59 trillion — with at least $39 trillion going to heirs — is expected to be transferred.
Such megatrends demonstrate that millennials and Gen Z — as consumers, investors, and as members of the labor force — are already affecting the way institutional funds develop investment strategies and deploy capital. Currently, the largest 400 asset managers in the world hold roughly $75 trillion of assets under management. Increasingly, the industry is grappling with how to steward the vast sums of money under its care as well as continue to drive shareholder returns.
We are already seeing some action. “ESG” has become a ubiquitous industry term.
Environmental, Social and Governance issues are coming to the fore for many fund managers, with vast amounts of ESG and ethical investing research being conducted.
Also, the Financial Times reports ESG assets in the money market funds sector rose 15% during the first half of the year, after growing 1% through all of 2018.
While fund managers are formalizing their ESG criteria, different associations and communities are getting together to find ways of driving greater change across the industry. Toniic, for example, is a global network of over 200 investors from more than 20 countries.
For family offices and other HNW individuals, impact investing can have the added benefit of bringing generations of a family together. “Often, advisers say, the original wealth creator finds it difficult to interest children or grandchildren in the investment side of the family wealth. But with the younger generation tending to be more socially minded, impact investing can be a way of drawing them in,” wrote Alice Ross in the Financial Times.
In both developed and emerging markets, this is the new normal. Millennials and Gen Z can’t be ignored any longer.
Chipo Muwowo is the head of content at Savvy Investor, a global research network for the global institutional investment community.