Case Study: Furthering a family’s ESG mission in a private investments portfolio
For generations, the Liu family has sought to make the world a better, more sustainable place. The patriarch of the family built the Liu’s wealth through a two-tiered approach: first, an investment in a manufacturing venture, and second, investing the proceeds of that venture into building an operating business with an environmental mission.
- Client: The Liu Family
- Source of wealth: Operating business with an environmental mission
- Situation: Seeking a new advisor for private investment ESG portfolio
- CA relationship: Discretionary portfolio management
Today, the wealth is managed by the second generation in coordination with an established family office (FO). The family is very focused on advancing an environmental, social, and corporate governance (ESG) mission that supports the principles outlined in the UN’s Sustainable Development Goals (SDG) and fully embodies the family’s value system and business history.
The Lius knew they needed specialized professional guidance to develop, implement, and manage a private ESG portfolio. They had a well-defined investment plan in place for the total portfolio, but wanted a firm with strength in ESG and private investing to meet the return objectives in that allocation. Through a collaborative effort, the Lius and their FO conducted a search for an investment organization with the following needs in mind:
- Embodiment of family values: an investment team with the ability and willingness to understand the values and principles that made the family unique, reflected not just in a customized strategy, but in the way the team served the client.
- ESG expertise and industry scale: a firm with extensive research and investment resources, and the presence within the impact investing community to be an influential advocate for driving better incorporation of ESG and sustainable principles in the investment industry.
- A diversified private ESG portfolio without return concessions: the ability to deliver on the family’s objective of a fully diversified private portfolio that reflected their stated values—as expressed through alignment with the UN SDGs—without compromising on return objectives.
- Constituent management: the capacity to respond to the family’s complex governance and reporting ecosystem and a communication approach that recognized the relationship encompassed a broad constituent group including trustees and FO investment staff as well as the family itself.
We understood from the outset that, for the Lius, our ability to build trust with their FO investment staff and other key advisors was just as important as delivering an investment program that furthered their family’s values. Johan, a Managing Director with Cambridge Associates (CA), kept this in mind as he took lead responsibility for the relationship and for directing the work of the Liu’s dedicated CA investment team.
To ensure that all needs were met, this team worked with the Lius and its FO staff to formalize governance parameters for the relationship. They then developed an investment strategy that aligned with the Lius’ values and portfolio objectives.
The team engaged in a series of in-depth sessions with the family and staff to discuss CA’s ESG investment philosophy, research platform, and investment decision-making process. They had productive discussions about the challenges of understanding private investment risk at both the manager and security levels, and why the risk profiles of mission-aligned portfolios are not necessarily greater than those of more traditional strategies—just different and less familiar. CA’s participation in quarterly family board meetings provided an opportunity to communicate with trustees and other family advisors about our ESG approach and demonstrate how its strategy would support the family’s mission without compromising on returns.
As the team began introducing the Lius to manager ideas, Johan outlined a framework for understanding and defining each investment’s role in the portfolio and in furthering the family’s values. Through this framework, each investment would be evaluated and assigned to a category–driving change, contributing, or neutral–and its categorization would indicate the extent to which it would advance the ESG mandate. For instance, specific sub-sectors, such as distressed assets, may lower the risk exposure of a highly mission-aligned portfolio even if the available investment opportunities may not accelerate a specific sustainability goal. Thus, such an investment could fall into the neutral category yet still advance the Lius’ overall mission by contributing to a more favorable risk/return profile for the total portfolio.
The team also explained how CA’s research approach is designed to uncover ESG opportunities across the full spectrum of private sectors and does not look at managers in an absolute “yes or no” framework. Every manager and fund that CA’s research team evaluates is viewed through a holistic lens that focuses on the structural influence of the strategy on ESG or impact themes. This approach to due diligence gave the Lius confidence that CA had the influence and reach required to amplify the family’s mission and values.
In addition to formal quarterly reviews at the family board meetings, we provide trustees with periodic updates and ad hoc progress reports that illustrate how our ESG framework advances the family’s mission and return objectives. As the portfolio build-out period advances, the family is devoting most of their time to initiatives that promote their mission. The CA team continues to advocate for the principles embodied in the Lius’ mission as it engages in manager meetings, industry conferences, and research efforts. It also continues to communicate with the FO and its staff to ensure that they fully understand the nuances of all investment parameters, operations, and decisions. While the relationship remains discretionary, it has evolved into a rewarding professional alliance dedicated to helping the Liu family make the world a better, more sustainable place.
This narrative has been fictionalized to ensure anonymity, but is based on actual client work.