TRIPLE BOTTOM LINE INVESTING

Posted on in Editorial by Josh
 

 

Leading up to the Great Recession, the finance industry swelled with hedge fund managers and their big plans to ride the unregulated wave of 20% returns. So much so, that assets under hedge fund management multiplied six times since 2000, soaring to nearly $3 trillion in 2014. The tricks of the trade were mainstreamed on Wall Street and it became more difficult for managers with traditional methodologies to claim historically high returns. Today, the risk-free rate of return is 1%, this is the interest your money will achieve if it sits in a United States bank. To achieve the pre-2008 returns, a hedge fund manager must outperform the risk-free rate by at least 100 times. For managers that invest in the stock or bond market, 10-20% returns are nearly impossible to achieve.

 

There are estimated to be over 10,000 hedge funds open today and Steve Cohen, who runs $11 billion at Point72 Asset Management, explains that there are just “too many players.” With heightened competition and lower rates of return, the rules of the game have changed. Consumer demand has grown to embody more than just high returns.

 

Pension fund managers and individual investors alike seek investments with a broader bottom line. This demand echoes a theory established in the 1990s by John Elkington, who introduced the phrase “the triple bottom line.” Elkington’s triple bottom line is meant to advance the goal of financial institutions beyond, but not excluding, high returns. The elements of the triple bottom line are referred to as people, profit and planet. Investments with a triple bottom line operate for economic returns, social impact and sustainability. Much has changed since Elkington established the theory, but the triple bottom line is resurfacing in new and interesting ways.

 

A Nielsen report released in October 2015 found 73% of millennials, which represent the largest consumer demographic in the United States, were willing to pay more for products that carry social benefits. However, when it comes to financial products, consumers no longer have to sacrifice profits for triple bottom line opportunities. New technologies, such as machine learning and artificial intelligence, allow innovative fund managers to engage with exotic assets that can deliver profit and social value. New funds that invest in green technologies, venture capital in developing nations and cultural expansion are flourishing from the market’s robust demand for profit with purpose.

 

Supporting the arts is a common act of philanthropy for successful individuals looking to give back with their profits, and for great reason. The art market offers a stable store of wealth and direct access to emerging artists all over the world. A successful art community adds substantial cultural capital to a region that can elevate its economy to an international level. The UN reported in 2015 that culture is a driver and enabler of sustainable development.The dual nature of the market has led investors to redefine the art asset class as a triple bottom line opportunity.

 

Thanks to disruptive data analytics and accessibility that the Arthena platform brings to the table, investment opportunities have never been more prevalent. The art asset class has transformed from a post-earnings philanthropic opportunity to one of the 5 most popular alternative investments.

To start investing or to learn how art funds work, e-mail concierge@arthena.com.

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