Many philanthropists feel that charity alone cannot solve all social problems. As such, more and more foundations, religious organizations, family foundations and other investors are furthering their programmatic goals through their investment portfolios without sacrificing returns – a/k/a impact investing. For those investors that have yet to join the movement or those just beginning their research, we think it is important to point out a great place to start – fixed income.
Fixed income is usually not as exciting or perhaps well known in the impact investing arena as other asset classes like equities, real estate and private equity. It is – however – a great place where investors can measure positive impact – quantitatively and qualitatively – without taking on typically higher levels of risk. More importantly, for investors looking into impact investing, fixed income is a great place to ‘dip your toe in the water’. Here are a few reasons why:
- Risk/Diversification: Fixed income is typically seen as a lower risk asset class with lower volatility than other impact investment options. An allocation to fixed income can play a pivotal role in managing a balanced portfolio.
- Income: The goal of many fixed income securities is to generate income and preserve capital with the potential for capital appreciation.
- Liquidity: Fixed income investments usually offer higher liquidity and are characteristically not subject to lock out periods.
- Impact: Fixed income investments offer a high degree of positive impacts to our economy. In fact, many would say more impact is created with fixed income securities than equities. It typically does not involve negative screening but rather a positive, proactive approach to helping society.
- Tangibility: A use of proceeds analysis for fixed income impact investments provides concrete evidence on their impact. Investors can see exactly what their investments are financing and how they are making a positive impact in the community.
Most portfolios have a percentage allocation to fixed income. Is yours best serving its philanthropic intent?