Young, rich, anti-capitalist capitalists
Andrea Bean is a 35-year-old millionaire. Once a wealth manager warned her to manage her money carefully, saying that inherited wealth is often squandered in just a few generations. “But my partner and I don’t plan to have children,” Bean said. “What are we raising money for? Especially when the world is literally on fire.”
So in March 2020, she hired Pien Phuong Luong, founder of financial planning firm Just Wealth, to help her redistribute some of her wealth to society. This means taking a portion of it off Wall Street and investing it in projects that advance human well-being and economic justice over profits.
Pien is one of a small but growing number of wealthy people seeking a more radical approach to investing. Some call it the seemingly contradictory term “anti-capitalist” investment. Others refer to it as a “transformational investment.” In general, proponents go beyond simply discouraging unethical behavior in companies. They are trying to shift more of the balance of financial power into the hands of the working class, and to transform an economic system which they believe has unfairly given a few people control over the majority of capital. Some investors want to spend all their wealth through anti-capitalist investing, while others still want to get a return on their investment but make sure that these investments are in projects that they feel promote social equity.
Industry financial professionals say they’ve seen increased interest in this type of investment strategy in recent years, and attribute some of the interest to social justice becoming a greater priority in the wake of the 2020 racial justice reckoning and the highly unequal epidemic. That killed a lot of black and brown working class people.
Another factor fueling this small shift: a lot of money is circulating in the US now. Over the next 25 years, America’s baby boomer generation will pass about $68 trillion to their children. This would be the largest transfer of wealth in US history, but the money would not be distributed evenly. More wealth will be concentrated at the top.
Kate Barron-Alicante, a financial advisor and director of impact at wealth management firm Abacus Wealth Partners, which helps some clients with transformative investing, told Recode, “What I’m seeing is more people on the other side of this wealth transfer who want to do it more effectively.” Different.
“Sometimes I joke that there are a lot more socialists who need a financial advisor than socialist financial advisors,” said Zach Teoch, financial advisor and founder of Values Add Financial, a financial advisory firm for Progressives. “People really crave this. They want an advisor who shares their contempt for an American economy dominated by super-rich billionaires.”
The longing is there, but an important question to ask early is how much anti-capitalist or transformational investment will be.
Attempts at ethical investing are not entirely new. The concept of socially responsible investing dates back centuries, and today there are a variety of approaches that fall under this umbrella. In recent years, it has attracted increasing doubts about its efficacy and ethics. The positive impact of socially responsible investment strategies that they claim to own is often difficult to measure, and there is no single strict definition of what “social responsibility” means – what is ethical for one person may not be forgivable for another.
“There has been a huge amount of interest, but also a huge amount of competition and marketing money spent by those big investment firms that are basically looking to make a quick buck,” said Sonia Kowal, president of Zevin Asset Management, an investment management firm. Focused on socially responsible investing. “There’s a lot of washing effect going on.”
Since it is a relatively new idea, anti-capitalist investing does not yet have a clear definition. Anti-capitalist investments and efforts fall across a broad spectrum, and not everyone will use the term “anti-capitalism” to refer to them. As Bean told Recode, “I wouldn’t go so far as to describe myself as anti-capitalist because I’m still involved in this economy….but I would like a world different from the current capitalist system we have.”
‘Transformational investment’ forms part of this spectrum, the goal of which is to transform the ‘extractive economy’ – the system we have now, where limited resources are extracted and few people are rewarded with profits – into a ‘renewable economy’ where capital is distributed More equitably and more democratically controlled.It is a concept popularized by Resource Generation, a social justice organization whose members are young, wealthy Americans who have committed to redistributing all or most of their money.
A company like Chordata Capital operates on the more radical end of the anti-capitalist investment spectrum, which offers an explicitly anti-capitalist approach to wealth management. Some Chordata clients want no return on their investment, and may be working on a plan to spend their fortune over a 20-year period.
“Sometimes when we use that language, [anti-capitalist investing], people say it’s a paradox. I think this comes from a place where people think there is no real alternative to capitalism, said Kate Poole, who leads Chordata with co-founder Tiffany Brown.
Paul advises clients to make investments in workers’ cooperatives, which are workers-owned businesses whose profits are shared among themselves, or community-controlled loan funds, such as those run by the Boston Ujima Project, which gives working-class members voting rights. on financing.
However, the financial services industry is not currently built for transformational investing. The general principle of investing is to minimize risk and maximize profit by holding different types of assets rather than putting all your eggs in one basket. It’s hard to maintain asset diversity when you avoid all publicly traded stocks. Financial advisors are also required by law to manage their clients’ investments through custodians, often large banks, who are custodians of the assets. “Many of these companies do not hold investments outside of Wall Street,” Long said. This means that investing in a community-based small business requires investment advisors to do more research and paperwork than investing in traditional investment vehicles that include many publicly traded companies.
It can also be difficult to find worthwhile options other than Wall Street that correspond to the transition to a renewable and more equal economy. Resource Generation member Kelly Cahill, 34, told Recode, “I loved the idea of moving my money into community investments rather than the stock market, but… where would I put it?” While an increasing number of retirement funds–the most common way most Americans hold stocks–offer socially responsible investment options, unless you can hire a financial advisor, you’re unlikely to have the knowledge and access to do so on a community-based investing basis.
Cahill, who got a big settlement due to an accident, initially followed common financial advice and put half of her money in the stock market. “I ignored it for a year,” she remembers. “And then when I finally got a look at it, I was amazed at how much it had grown back then.” She realized she didn’t need all of that, so she joined Resource Generation and found a financial advisor who could help her redistribute a third of her into a community investment.
Resource Generation provides a database of qualified financial professionals and companies to help people with transformational investing. For now, the list is still small, with fewer than 30 investment firms able to offer at least some off-Wall Street investment options and support transformative investment. But Nadav David, an organizer at Resource Generation who helped create the database, told Recode that there was a slight surge in interest.
“Over the past several years, I’ve certainly seen more conversations about the complete stripping of Wall Street and public markets, and more in communities,” he said. Meanwhile, the Resource Generation membership grew. According to the organization, it had 702 members at the end of 2019. By the end of 2021, it had 1,155.
“We are interested in ending inheritance as we know it, and being the last generation of people who can accumulate wealth in this way,” David said.
As transformational investing grows, even if it remains an appropriate part of the financial market, emphasizing how it differs from other types of ethical investing will become even more important, especially if it wants to avoid the fog that surrounds socially responsible investing. As of now, the latter is becoming more and more common. In 2020, nearly 36 percent of professionally managed assets globally were classified as socially responsible investments. Within this category, ESG integration was the most popular strategy – just over $25 trillion in assets was used for ESG integration in 2020. This includes calculating a company’s carbon footprint or how well it treats employees when Calculate risk or return on investment, because such factors can affect the financial performance of the business. ESG does not necessarily prioritize social values over financial performance.
In contrast, only $352 billion was earmarked for community impact or investment. However, $352 billion represents a 42 percent increase since 2016. It indicates a growing appetite for alternative investment strategies that go beyond the surfactant impact often associated with investing in ESG.
While there is no illusion that radical investment alone will solve the problem of wealth inequality, the emergence of this trend suggests that the next several decades may be transformative for the financial services industry. For the small number of wealthy young Americans who inherit, it is not enough to donate to a few charities – one of the biggest criticisms of big philanthropy is that it lacks transparency and is undemocratic. They recognized the need to transcend guilt about their own privileges and the deep inequalities that exist in the world. They are trying to change the power imbalance in the relationship they have with others, and they feel as if they are part of a community that is not only related to wealth.
Bean remembers her late father’s advice on how to manage money. “He said, ‘Listen, Andrea, I know you love reallocating money, but I know you need at least $13 million to be completely safe,'” which I thought was absurd,” she said. “Part of the reason I wanted to be involved in this redistribution movement was because my dad worked really hard — and he was really aloof. He didn’t have a lot of close friends.”
“I want the future to look like everyone has a little more than enough,” Bean continued. “Everyone can feel confident in their identities and feel connected to the communities around them — not isolated.”