As the intergeneration transfers of wealth continue, Islamic fund managers risk losing assets to those offering impact investing opportunities to millennials. According to an EY study, when assets change generations, firms typically lose 70-80% of those assets.
One may ask, what are ‘impact investments’? According to the Global Impact Investing Network (GIIN), impact investments are “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return”. CNBC cited a GIIN report in May 2018 stating that: “In 2017, an estimated US$139.9 billion was invested in impact investment strategies … up more than 10-fold since 2014, when the amount was US$10.6 billion.”
A study by the United Nations Development Program in 2014 found that millennials are potentially set to inherit US$30 trillion in the next 15 years. Compared to their predecessors, millennials live in an information era, where they are more aware of the environment and sustainability issues and are driving much of the awareness and demand for conventional impact funds. Many Muslim countries have significant millennial populations, proportionally greater than in non-Muslim countries.
Additionally, according to a Morgan Stanley study, when compared to nonmillennial investors, millennials are incorporating sustainability not only into investment decisions but also into overall consumer behavior. Millennials are achieving greater integration of their money and values by seeking personal fulfillment in their careers, applying a global consciousness to purchases and investing in sustainable, impactful business models.
Retail Islamic asset managers, seeking to attract the funds of millennials, need to make a concerted effort to offer Shariah compliant solutions to those seeking to have a positive impact on society by investing in companies whose business activities are focused on addressing global issues. Consequently, the wealth and asset managers who supply millennials with value-based investment options will be strongly positioned to attract new assets to the firm as well as retain beneficiary millennial clients.