by Chief Executive Officer Louise Walsh.
Future Generation’s model providing financial and community returns.
“The future of finance needs to be less about leverage, financial engineering and stratospheric bonuses, and more about efficiently and cleanly connecting capital with ideas, long-term investing for the good of society and delivering on promises to future generations.” – John Rogers CFA, president and CEO of CFA Institute.
Globally, investors are increasingly directing capital towards investments that are focused on creating a positive social impact in addition to wealth. The Global Impact Investing Network (GIIN), based on its June 2019 survey’s 80 respondents, estimates that global impact investing assets have grown from US$37 billion to nearly US$69 billion over the past four years.
In Australia we are seeing more and more shareholders driven to make money work for society as well as for themselves.
This is partly driven by the large transfer of wealth from older generations to millennials, who are nearly twice as likely as non-millennial investors to invest in funds that target specific social or environmental outcomes. (Source: Sustainable Investing – the Millennial Investor, 2017.)
Philanthropic investment vehicles
This rise in investing for social returns was introduced in Australia in 2014 with Future Generation Investment Company, the first listed philanthropic investment vehicle of its kind here. The Future Generation model is based on the ideology that impact investing does not mean having to give up capital growth.
This vision of combining investment and philanthropic initiatives is catching on in Australia as the demand for these kinds of vehicles increases. At the end of 2018, for example, the Sohn Conference Foundation listed Hearts and Minds Investments Limited (ASX: HM1) on ASX.
Future Generation’s model delivers investment and social returns through two philanthropic vehicles, Future Generation Investment Company Limited (ASX: FGX) and Future Generation Global Investment Company Limited (ASX: FGG).
The companies provide shareholders with exposure to the best Australian (FGX) and global (FGG) fund managers, and charities focused on children at risk (FGX) and youth mental health (FGG), with a stream of annual donations. The fund managers do not charge management or performance fees, allowing the companies to invest 1 per cent of assets to the supported charities each year.
They also seek to deliver a stream of fully franked dividends and capital growth. The companies provide fund managers with a unique opportunity to make a positive difference to Australia’s future generations. Total charitable investment since inception is currently $21.1 million. This year the combined annual donation is on track to reach approximately $10 million.
Outperformance and reduced volatility
Since listing in September 2014, Future Generation Investment Company’s portfolio has increased 8.9 per cent per annum, outperforming the benchmark by 1.2 per cent. This has been achieved with less volatility as measured by standard deviation, 7.6 per cent compared to the index’s 11.1 per cent.
Future Generation Global Investment Company’s highly diversified global investment portfolio consists of 13 fund managers with investments in 14 global funds and has increased 8.8 per cent per annum since inception in September 2015. The portfolio’s performance has been achieved with less volatility as measured by standard deviation, 8.5 per cent compared to the market’s 10.2 per cent.
FGX is on track to deliver its fifth annual investment of approximately $4.6 million in 2019, bringing the total amount invested since inception to $16.6 million. This year FGG is on track to invest approximately $4.9 million in the company’s charity partners, bringing the total amount invested since inception to $14 million.
As one of eight FGG charities, Butterfly Foundation is committed to ensuring that any Australian with an eating disorder can access affordable, evidence-based care irrespective of their location or economic status. In addition to raising awareness and advocating for the needs of individuals and families with eating disorders, Butterfly provides prevention, support and treatment services.
FGG funding enables Butterfly to deliver an innovative program for young people at risk of eating disorders: the Youth Intensive Outpatient Program, an evidence-based early intervention program for young people aged 14 to 24.
The majority of participants experienced significant reductions in symptomatic/negative behaviours and thoughts, and 95 per cent of participants completed the program, with those providing feedback rating the overall program very highly.
Future Generation’s longer-term aim is to invest $100 million in charities focused on children at risk and youth mental health by 2044.