How wealth managers can fulfil entrepreneurs' desires to make a difference

Are you successful in business? Ask senior leaders that question and many will instinctively point to their record of improving the company share price, profit growth, or both, to showcase their achievements.

But, tellingly, if you pose the same question to the world’s most successful entrepreneurs – you are likely to receive a more nuanced response. Yes, profit is important, yet many also judge their own records by a second consideration: social impact.

Critically, their efforts are not just restricted to philanthropy or giving money away. Their quest spans different areas of the entrepreneurial existence, such as their roles as global employers, responsible investors and business mentors.

This year marks the fourth edition of the Global Entrepreneur Report, which Scorpio Partnership researched and developed jointly with BNP Paribas Wealth Management. The report surveyed 2,700 high net worth (HNW) entrepreneurs in 22 advanced and emerging economies. The sample had an average net worth of $13.4m and typical primary company revenues of approximately $25.1m. Together they employ almost half a million people worldwide.

These Elite Entrepreneurs had a good year last year, with 62 per cent seeing their profits rise in 2016. So, after a period of sustained financial success, many are now looking for new challenges.

In 2017, 39 per cent said they consider social impact to be part of their definition of business success. Two years ago, only one in 10 believed this was a relevant metric. For entrepreneurs, the term ‘impact’ means something quite specific. It is the chance to use their individual talents to make significant social, economic and environmental contributions.

Many entrepreneurs are embracing the influence which comes with business leadership. After all, they employ on average 166 people in their primary companies and so have the power to change lives and empower careers. Strikingly, it is the most successful entrepreneurs – or Ultrapreneurs – who believe most passionately in job creation as a way to give back. As one board member of a global manufacturing firm told me: “As a privately-owned business, we have a social responsibility. We are a big employer and so have a duty to the thousands of people who depend upon our company.”

The impetus to respond to the world around them is also reflected in their investment choices. The majority of entrepreneurs (55 per cent) have allocated at least some proportion of their wealth towards securing socially-responsible outcomes. Among the younger generation, this rises to 80 per cent. Globally, those who invest responsibly are motivated by a desire to safeguard the environment, create jobs and support the transition to clean energy. These investment priorities are of course interpreted differently at a regional and country level.

Many institutions in the wealth management community view entrepreneurs as a core client segment and are dedicated to supporting business owners build and grow their companies. To support those efforts, here are three takeaways from our research findings:

1. Pre-empt the growing appetite for business investment: Elite Entrepreneurs, particularly Millennipreneurs, are searching for new opportunities to finance the growth trajectories of other promising firms. By 2022, we project surging demand for business investment vehicles such as private equity, start-up financing and impact investing – particularly in the Bric countries and Indonesia.
2. Raise client awareness of responsible investing: Older and younger entrepreneurs alike face some surmountable barriers to increasing allocations to socially responsible vehicles. Millennipreneurs, for example, are the most enthusiastic generation but many are not aware of the available products. Older clients – particularly Boomerpreneurs (aged 55 years or older) – are especially uncertain that these products are relevant to their objectives or risk profiles.
3. Demonstrate the financial case for impact investments: Entrepreneurs will often agree that there is a moral case for impact investments but may be sceptical about financial returns. This is more observable among business owners in Europe for example, than in Apac where returns will often be equivalent to traditional investments, such as private equity. Wealth managers must debunk the myth that it is not possible to achieve good returns and have a positive impact. They should also be clear that the success metrics will look different for each project and may need a longer time horizon.

To look at the data and read the stories featured in the 2018 Global Entrepreneur Report, please visit this link.

Tasha Vashisht is senior manager at wealth management think-tank Scorpio Partnership