Is anti-capitalist investing the new socially responsible investing?

Andrea Pien is a 35-year-old millionaire. A wealth manager once told her to be careful with her money, saying that inherited wealth is often squandered in just a few generations. “But my partner and I didn’t plan to have kids,” Piane said. “What are we hoarding money for? Especially when the world is really burning.”

So in March 2020, Pien hired Phuong Luong, founder of financial planning firm Just Wealth, to help her redistribute some of her wealth back into society. That means taking some of that off Wall Street and investing it in businesses that promote human well-being and economic equity rather than profit.

Peane is one of a handful of wealthy people seeking a more aggressive approach to investing, but the numbers are growing. Some call it the seemingly contradictory term “anti-capitalist” investing; others call it “transformative investing.” In general, proponents do more than curb unethical behavior in companies. They are trying to shift more of the financial balance of power into the hands of the working class, changing an economic system they believe unfairly puts a few in control of most capital. Some investors want to spend all their wealth with anti-capitalist investments, while others still want to get a return on their investments, but make sure they go to businesses they believe promote social justice.

Financial professionals in the field say they have seen growing interest in this investment strategy in recent years, attributing some of the interest to social justice in the 2020 racial justice reckoning and Epidemic of severe inequality Killed so many black and brown working class people.

Another factor driving this small shift: a lot of money is now changing hands in the US.America’s Baby Boomers Will Continue Over the Next 25 Years about $68 trillion to their children. It would be the largest transfer of wealth in U.S. history, but the money would not be distributed equally. More wealth will be concentrated at the top.

Kate Barron-Alicante, financial advisor and director of influence at wealth management firm Abacus Wealth Partners who helps some clients make transformative investments, told Recode: “I see more people on the other side of the wealth transfer who want to do it differently. do things,” she said.

“I joke sometimes that there are far more socialists who need financial advisors than socialist financial advisors,” said Zach Teutsch, a financial advisor and founder of Values ​​added Financial, a financial advisory firm for progressives. “People really want this. They need an advisor who shares their disdain for an American economy dominated by super-rich billionaires.”

The desire is there, but an important question to ask early on is how much of an impact anti-capitalist or transformative investment will have.

Attempts to invest ethically are not new.The concept of socially responsible investing dating back centuries, and today there are multiple approaches that fall into this category.In recent years, they have attracted Doubt increases about them effect and morality. The claimed positive impact of a socially responsible investment strategy is often difficult to measure, and there is no hard-and-fast definition of what it means to be “socially responsible” — what is moral to one person may be unforgivable to another .

“Those are basically big investment firms that want to make a quick buck, investing heavily in competition and marketing,” said Sonia Kowal, president of Zevin Asset Management, an investment management firm that focuses on socially responsible investing. “There are many impact washing processing. “

Because it is a relatively new idea, anti-capitalist investing does not yet have a clear definition. Anti-capitalist investments and efforts span a spectrum, and not everyone will use the term “anti-capitalist” to refer to them. As Pien told Recode, “I wouldn’t describe myself as an anti-capitalist because I’m still involved in this economy. … But I want a world that’s different from our existing capitalist system.”

forming part of this spectrum is “Transformative Investing”, Their goal is to transform the “extractive economy” — the system we have now, in which limited resources are extracted and only a few earn profits — into one where capital is more equitably distributed and more democratically controlled” Regenerative Economy”.It’s a popular concept resource generationa social justice organization whose members are wealthy young Americans who have pledged to reallocate all or most of their money.

Operating on the more aggressive end of the anti-capitalist investment spectrum is a company like String Data Capital, which offers a decidedly anti-capitalist approach to wealth management. Some of Chordata’s clients don’t want any return on their investment, and they may have a plan to spend their wealth over 20 years.

“Sometimes when we use that language, [anti-capitalist investing], people say it’s a paradox. I think it’s because people believe there is no real alternative to capitalism,” said Kate Poole, who leads Chordata with co-founder Tiffany Brown.

Poole recommends clients invest in worker cooperatives, which are businesses that are owned by workers and share profits among them, or community-controlled lending funds, such as community-controlled lending funds. Boston Ushima Projectwhich allows working-class members to vote on which participating businesses in their community should receive funding.

However, the financial services industry is not currently built for transformative investments. The general principle of investing is to minimize risk and maximize profit by holding different kinds of assets rather than putting all your eggs in one basket. Maintaining asset diversification is harder when you steer clear of all publicly traded stocks. The law also requires financial advisers to manage clients’ investments through a custodian, usually a large bank, that holds the assets in custody. “Many of these firms don’t host investments outside of Wall Street,” Luong said. That means investing in small community businesses requires more research and paperwork from investment advisors than investing in traditional investment vehicles, including many public companies.

It may also be a challenge to find worthwhile non-Wall Street options that are consistent with the transition to a renewable, more egalitarian economy. Kelly Cahill, a 34-year-old Resource Generation member, told Recode, “I like the idea of ​​moving my money into community-based investments rather than the stock market, but … where should I put it?” While more and more of retirement funds — the most common way most Americans hold stocks — are offering socially responsible investment options, but unless you can hire a financial advisor, you’re unlikely to have the community-based knowledge and Opportunistic investment.

Cahill, who received a huge settlement for an accident, initially followed common financial advice and put half of her money in the stock market. “I ignored it for a year,” she recalls. “Then when I finally saw it, I was blown away by how much it had grown over that time.” She realized she didn’t need all of that, so she joined Resource Generation and found a financial advisor who could Help her reallocate a third of that to community-based investments.

Resource Generation provides a database of financial professionals and companies qualified to help people make transformative investments. For now, the list is still small, with fewer than 30 investment firms able to offer at least some non-Wall Street investment options and transformative investment support. But Nadav David, a Resource Generation organizer who helped create the database, told Recode that interest has grown.

“Over the past few years, I’ve really seen more conversations about actually pulling out completely from Wall Street and the public markets and the community,” he said. At the same time, Resource Generation’s membership is growing. At the end of 2019, it had 702 members; by the end of 2021, it had 1,155, according to the organization.

“We are interested in ending inheritance as we know it and being the last generation to be able to accumulate wealth this way,” David said.

As transformative investing grows, even if it remains a niche part of financial markets, it will become even more important to highlight how it differs from other types of ethical investing, especially if it wants to avoid revolving around socially responsible investing ambiguity. As of now, the latter is more popular. In 2020, almost 36% Globally professionally managed assets are classified as socially responsible investments. In this category, environmental, social and corporate governance (ESG) integration is the most popular strategy – Just over $25 trillion Among assets using ESG integration in 2020. This includes considering a company’s carbon footprint or how the company treats its employees when calculating the risk or return of an investment, as these factors may affect the financial performance of the business. ESG does not necessarily place social value over financial performance.

By comparison, only $352 billion was spent on impact or community investments. Still, that $352 billion is up 42 percent since 2016. This points to a growing need for alternative investment strategies, not just the surface impact washes associated with ESG investing.

While no one seems to be under the illusion that radical investing alone will solve wealth inequality, the emergence of this trend suggests that the coming decades could be transformative for the financial services industry.For a handful of wealthy young Americans, it’s not enough to just donate to a few charities—one of them Biggest criticism of big philanthropy is that it lacks transparency and is undemocratic. They have recognized the need to move beyond feeling guilty about their privilege and the gross inequalities that exist in the world. They try to change the power imbalance in their relationships with others and feel like they are part of a community that is not just tied together by wealth.

Peane recalled her late father’s advice on how to manage money. “He said, ‘Look, Andrea, I know you like to reallocate money, but know you need at least $13 million to be absolutely safe,’ and I think that’s ridiculous,” she said. “Part of the reason I wanted to be part of this redistributive movement was that my dad worked very, very hard — and was very isolated. He didn’t have many close friends.”

“I hope in the future it looks like everyone has enough,” Piane continued. “Everyone can feel their identity affirmed and feel connected to the community around them – not isolated.”