Tuesday, August 9, 2011
Shameless Self Promotion - Runner Up Prize in the International Impact Investing Challenge
Together with my awesome team mates, Julie Zhu, Benoit Passot and Vidya Vasu-Devan, we represented Stanford GSB in the inaugural International Impact Investing Challenge, hosted by JPM and Kellogg School of Management, back in April. We presented the Impact Shares idea and received the runner up prize. Here is our presentation and video.
Very proud of our team effort! This serves as my introduction to the world of impact investing.
Thursday, August 4, 2011
Money vs. Impact
My friend Jean-Luc Park recently published a guest blog for the Aspen institute on the topic of whether Impact Investing can make money - The importance of area expertise in impact investing.
The answer from the blog is yes you can make the same risk adjusted returns in Impact Investing just like any types of investment but similarly to other investment field, experience and specialized knowledge is key.
I agree, just like any type of investment, a competitive advantage is gained by focusing on one's strength. And there are definitely benefits of focus, which I feel some funds currently lack.
A more subtle question is how much is the "right" amount of money to make in the Impact space. There are financial first investors that has a goal of making as much return as possible while having a floor of "minimum" level of impact, and there are impact first investors who focuses on impact and are happy to only get a portion of their principle back, it being still a better outcome than granting.
I can see the arguments from both sides. At the "proof of concept stage"of the Impact investing space and when trying to attract money from main stream investors and fund providers, to be able to make money is important. I was recently at an LP conference for one successful Impact fund, and asked the various LPs whether they devoted a special pot of money for Impact Investing. All of the answers were a resounding "no" - they support this fund first and foremost because of its attractive returns and it's great that they are also socially / environmentally conscious and impactful, but that is just a secondary feel good factor. Some industry participants may feel this is moving away from the core of the Impact Investing industry. After all, if the primary purpose is to make money, then what is the point of creating a new asset class. My own feeling is that if this encourages more funding to flow into this philosophy of investing, even though the impact is restricted (and this is another debatable point, is there always a necessary trade off between impact and returns?) by the focus on financial returns, then it is good for the industry. These funds, by attracting mainstream LPs, serves to promote a new, responsible, actively progressive way of investing. This helps the industry to increase in scale and promote the new philosophy to investing.
Another school of thought is that the justification and necessity for the creation of a new asset class, is to support the types of businesses that actively addresses a social / environmental problem and are finding it difficult to attract funding from the traditional sources. This maybe because they are too small, considered too risky, "too" innovative or that the traditional investors simply do not have the expertise to analyze their value. This is where the impact investors come in. By this definition then, it seems reasonable to assume a certain amount of trade off between impact and financial returns. Thus, the other end of the spectrum is that its ok to just get one's principle or even a fraction of the principle back.
My own view is that a balance between impact and financial return needs to be achieved. I'm attracted to this industry precisely because I believe in solutions to some of world's problems can be found in for-profit business models that brings discipline and attract talents. And these are the type of social enterprises that impact investing is trying to support. I believe the same philosophy should apply to the fund level too, in order to bring discipline and attract talents at the investment level. We should not call it impact investing if we cant make money, and we should not call it impact investing if we cant make impact. So far, of all the funds I have seen, I am mostly attracted to funds that promotes hurdle rates below market returns for top tier VC funds (so at a high single digit or inflation + for as appropriate), and also has a carry systems that depends on both this financial hurdle rate as well a rigorous impact measure.
Would love to hear other people's thoughts on this topic.
The answer from the blog is yes you can make the same risk adjusted returns in Impact Investing just like any types of investment but similarly to other investment field, experience and specialized knowledge is key.
I agree, just like any type of investment, a competitive advantage is gained by focusing on one's strength. And there are definitely benefits of focus, which I feel some funds currently lack.
A more subtle question is how much is the "right" amount of money to make in the Impact space. There are financial first investors that has a goal of making as much return as possible while having a floor of "minimum" level of impact, and there are impact first investors who focuses on impact and are happy to only get a portion of their principle back, it being still a better outcome than granting.
I can see the arguments from both sides. At the "proof of concept stage"of the Impact investing space and when trying to attract money from main stream investors and fund providers, to be able to make money is important. I was recently at an LP conference for one successful Impact fund, and asked the various LPs whether they devoted a special pot of money for Impact Investing. All of the answers were a resounding "no" - they support this fund first and foremost because of its attractive returns and it's great that they are also socially / environmentally conscious and impactful, but that is just a secondary feel good factor. Some industry participants may feel this is moving away from the core of the Impact Investing industry. After all, if the primary purpose is to make money, then what is the point of creating a new asset class. My own feeling is that if this encourages more funding to flow into this philosophy of investing, even though the impact is restricted (and this is another debatable point, is there always a necessary trade off between impact and returns?) by the focus on financial returns, then it is good for the industry. These funds, by attracting mainstream LPs, serves to promote a new, responsible, actively progressive way of investing. This helps the industry to increase in scale and promote the new philosophy to investing.
Another school of thought is that the justification and necessity for the creation of a new asset class, is to support the types of businesses that actively addresses a social / environmental problem and are finding it difficult to attract funding from the traditional sources. This maybe because they are too small, considered too risky, "too" innovative or that the traditional investors simply do not have the expertise to analyze their value. This is where the impact investors come in. By this definition then, it seems reasonable to assume a certain amount of trade off between impact and financial returns. Thus, the other end of the spectrum is that its ok to just get one's principle or even a fraction of the principle back.
My own view is that a balance between impact and financial return needs to be achieved. I'm attracted to this industry precisely because I believe in solutions to some of world's problems can be found in for-profit business models that brings discipline and attract talents. And these are the type of social enterprises that impact investing is trying to support. I believe the same philosophy should apply to the fund level too, in order to bring discipline and attract talents at the investment level. We should not call it impact investing if we cant make money, and we should not call it impact investing if we cant make impact. So far, of all the funds I have seen, I am mostly attracted to funds that promotes hurdle rates below market returns for top tier VC funds (so at a high single digit or inflation + for as appropriate), and also has a carry systems that depends on both this financial hurdle rate as well a rigorous impact measure.
Would love to hear other people's thoughts on this topic.
Thursday, July 21, 2011
Impact Investment Exchange Asia (IIX)
Exciting things are happening in the Impact Investing space in Asia. My friend En Lee, is involved in IIX Asia, home of Asia's first private and public platforms for Social Enterprises (SE's) to raise capital efficiently.
Shujog, IIX's nonprofit sister organization was created to carry out the research and impact assessment work on SEs across Asia Pacific. In addition, Shujog also took on the role to do advocacy work for SEs interms of arranging monthly talks around impact investing.
I feel China is behind in the Impact Investing space. In my recent tour of HK and China, whenever I bought up the topic of Impact Investing, after extended explanations, I was always met with "that will never work in China". I guess the underlying assumption is that the Chinese people are too busy chasing money, and there is no value system nor a trusted infrastructure to support philanthropic work other than those backed by the government. Even home grown charities are rare in China, never mind something that tries to make money and do good at the same time.
But things are changing. As people's wealth grow, there is an increasing need to do some good with one's pile of cash, especially amongst the super rich. Putting the fundamental motivations of such actions aside, there need to be a system that supports the distribution and handling of this stream of money. Already, we hear of opportunities of foundations being set up by the the new generation of wealth who are no longer satisfied with donating to monasteries or government funded projects, yet desperately wanting to address social issues in China. There are also examples of social entrepreneurs doing great work on the ground. More work needs to be done connecting these two communities, or at least let each know the other exists. This, I think is the great work carried out by organizations such as IIX. Please open an office in China!
Shujog, IIX's nonprofit sister organization was created to carry out the research and impact assessment work on SEs across Asia Pacific. In addition, Shujog also took on the role to do advocacy work for SEs interms of arranging monthly talks around impact investing.
I feel China is behind in the Impact Investing space. In my recent tour of HK and China, whenever I bought up the topic of Impact Investing, after extended explanations, I was always met with "that will never work in China". I guess the underlying assumption is that the Chinese people are too busy chasing money, and there is no value system nor a trusted infrastructure to support philanthropic work other than those backed by the government. Even home grown charities are rare in China, never mind something that tries to make money and do good at the same time.
But things are changing. As people's wealth grow, there is an increasing need to do some good with one's pile of cash, especially amongst the super rich. Putting the fundamental motivations of such actions aside, there need to be a system that supports the distribution and handling of this stream of money. Already, we hear of opportunities of foundations being set up by the the new generation of wealth who are no longer satisfied with donating to monasteries or government funded projects, yet desperately wanting to address social issues in China. There are also examples of social entrepreneurs doing great work on the ground. More work needs to be done connecting these two communities, or at least let each know the other exists. This, I think is the great work carried out by organizations such as IIX. Please open an office in China!
Wednesday, July 20, 2011
ImpactAssets 50
ImpactAssets 50 offers a list of experienced private debt and equity impact investment fund managers that deliver social and environmental value in addition to financial returns (including leaders from microfinance, community development, fair trade, and other strategies).
Impact capital is the new venture capital - By Sir Ronald Cohen
Great article (part I and II) penned by Sir Ronald Cohen
Sir Ronald Cohen is chairman of Bridges Ventures and The Portland Trust. He chaired the UK's Social Investment Task Force and the Commission on Unclaimed Assets and he is a founder-director of Social Finance. Until 2005, he was executive chairman of Apax Partners Worldwide LLP, which he co-founded in 1972.
"Just as hi-tech business enterprise and venture capital, working in tandem, have attracted increasing numbers of talented risk-takers since the 1970s, so social enterprise and impact investment are now attracting a new generation of talented and committed innovators seeking to combine new approaches to achieving social returns. Social enterprise and impact investing, in short, look like the wave of the future."
Sir Ronald Cohen is chairman of Bridges Ventures and The Portland Trust. He chaired the UK's Social Investment Task Force and the Commission on Unclaimed Assets and he is a founder-director of Social Finance. Until 2005, he was executive chairman of Apax Partners Worldwide LLP, which he co-founded in 1972.
Summer of 2011
Summer of 2011 has the potential to be a big turning point in my life.
I'm interning at Calvert special equities, learning about Impact Investing. Impact Investing describes investment activities that seeks positive social / environment impact as well as financial return. It is the concept of "doing good and doing well". The tag line I came up on Saturday was "Impact Investors help social entrepreneurs to solve some of the world's biggest and hardest problems". Impact Investing is also about investing for the future, its more than a new asset class, it is an investment philosophy and philosophy of life.
I want to record my own personal journey on discovering and exploring this industry and grappling with some of the key questions and challenges along the way. I also want this blog to act as a forum for my friends who are working or interested in the industry, sharing resources and reflections. Someone I was talking to today said the good thing about this industry is its strong support network. Because the industry is so new and trying to establish it self, everyone wants everyone else to succeed. Because one success story goes along way to explain the industry to outsiders and cynics. And there are a lot of cynics, myself included.
The article by Paul Hawkins is very inspirational and explains why one needs to look for and create more values in life than just financial returns. The quote below deals with cynics like me.
"The most unrealistic person in the world is the cynic, not the dreamer. Hope only makes sense when it doesn’t make sense to be hopeful. This is your century. Take it and run as if your life depends on it."
I'm interning at Calvert special equities, learning about Impact Investing. Impact Investing describes investment activities that seeks positive social / environment impact as well as financial return. It is the concept of "doing good and doing well". The tag line I came up on Saturday was "Impact Investors help social entrepreneurs to solve some of the world's biggest and hardest problems". Impact Investing is also about investing for the future, its more than a new asset class, it is an investment philosophy and philosophy of life.
I want to record my own personal journey on discovering and exploring this industry and grappling with some of the key questions and challenges along the way. I also want this blog to act as a forum for my friends who are working or interested in the industry, sharing resources and reflections. Someone I was talking to today said the good thing about this industry is its strong support network. Because the industry is so new and trying to establish it self, everyone wants everyone else to succeed. Because one success story goes along way to explain the industry to outsiders and cynics. And there are a lot of cynics, myself included.
The article by Paul Hawkins is very inspirational and explains why one needs to look for and create more values in life than just financial returns. The quote below deals with cynics like me.
"The most unrealistic person in the world is the cynic, not the dreamer. Hope only makes sense when it doesn’t make sense to be hopeful. This is your century. Take it and run as if your life depends on it."
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