Social Impact Investing

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Impact Investments: An emerging asset class Global Research 29 November 2010 return expectations, risk appetite and impact goals. These sources can include local, regional and multilateral government-sponsored development finance institutions, institutional-scale private foundation investment programs, angel investment capital 18 and impact investment funds. Successful impact investors will know how to navigate these capital sources, partnering with investors whose different risk/return appetites allow structured transactions that can incorporate mezzanine finance, concessionary capital 19 or subordination for their own investments. Political insight The best impact investors will have a deep understanding of the social and political dynamics that will influence investment outcomes, especially for investments into companies that provide basic goods and services to underserved market segments. They must manage the emotionally and politically charged dynamics of applying forprofit business models to communities in need, as some opponents will brand it: “profiting from the poor”. Mishandling these dynamics can have dire consequences, such as inhibiting exit from investments, eroding the social impact if consumers boycott the products/services sold, inducing restrictive government action, or tarnishing the reputation of the investor in the region. Collaboration Impact investors draw on strong personal relationships and institutional affinity with each other in the full range of investment activity (from deal sourcing, due diligence, investment structuring, syndication and post-investment management), for several reasons that are both structural and transitional: • Impact investing is new and poised to grow substantially. For many investors, this growth is expected to more than offset any loss of market share and therefore facilitates collaboration. • Transaction costs will be high until the infrastructure that supports investors – e.g., deal clearing mechanisms, benchmarking data, and investment banking services – is built. Until then, impact investors mitigate these operating costs through formal or informal collaboration. Indicator #2: Demand organizational structures to accommodate this skillset Impact investing emerged from the entrepreneurial initiatives of professionals integrating the investment discipline traditionally housed in financial services firms with the social-welfare focus traditionally housed in foundations and development agencies. While these individuals began impact investing part-time within a broader and more traditional professional practice, they are increasingly organizing into distinct structures that enable the dedicated attention to and cultivation of impact investing. New business units: Initiatives within organizations Some impact investors have created organizational structures within established institutions. Some examples of such commercial business units include J.P. Morgan Social Finance (2007) 20 , TIAA-CREF Social and Community Investing (2006) 21 , and 18 Angel capital refers to financing from individuals in exchange for equity or convertible debt. Angel investors operate like a venture capital partner in the company, but typically service financing requests of a smaller size than venture capital firms tend to consider. 19 Below market-rate financing. 20 http://www.jpmorgan.com/pages/jpmorgan/investbk/solutions/ssf 26
Impact Investments: An emerging asset class Global Research 29 November 2010 Citi Microfinance (2005), which initially focused on microfinance before expanding their coverage to the broader impact investing universe. Prudential Social Investments began its formal program of community investing as far back as 1976 22 . Among private foundations, especially in the US, distinct units have been created to manage impact investments, typically with investment professionals reporting to a unique governance structure that combines program-focused and investment-focused management and trustees. Examples include the Annie E. Casey Foundation’s $125m allocation to impact investing out of its endowment (begun at smaller scale in 2004) 23 , the Kellogg Foundation’s $100m Mission Driven Investment program (2007) 24 , and the Bill & Melinda Gates Foundation’s commitment of $400m to program-related investments and loan guarantees (2009) 25 . The Esmée Fairbairn Foundation has been a pioneer in the UK by dedicating a portion of its investment program to impact investments. New businesses: Stand-alone impact investing initiatives New enterprises focusing entirely on impact investments are increasingly common. This is noteworthy, as these organizations will be protected from the constraints that can come with operating within an organization that primarily focuses on either financial or social value creation, but not both. Early leaders have scaled their impact investing operations from a base of microfinance services, including BlueOrchard 26 , ResponsAbility Social Investments 27 , Calvert Foundation 28 and Developing World Markets 29 . Some such as Bridges Ventures in the UK have always focused on a broader range of investments. Additionally, new impact investment advisory boutiques are bringing dedicated expertise together, including Lion’s Head Global Partners and Social Finance in the UK, Intellecap and Yes Bank in India, Bamboo Finance in Switzerland 30 and Imprint Capital in the US. Indicator #3: Be serviced by industry organizations, associations and education In response to the increasing organization of the professional discipline of impact investing, networks and conferences are emerging that support impact investors. We detail some of the leading initiatives below. Networks: GIIN, IAMFI The Global Impact Investing Network was launched in 2009 as a non-profit organization to support the building of infrastructure that would facilitate the growth of the asset class. Its Investors’ Council provides a forum in which leading asset owners and fund managers can share learning and collaborate with 32 members, including boutique impact investors, foundations with impact investment units, family offices with substantial allocations to impact investment, impact investing units of financial services companies, and targeted impact investments funds. 21 http://www.tiaa-cref.org/public/about/press/about_us/releases/pressrelease177.html 22 http://www.prudential.com/view/page/public/12848 23 http://www.thegiin.org/cgi-bin/iowa/investing/spotlight/87.html 24 http://www.thegiin.org/cgi-bin/iowa/investing/spotlight/112.html 25 See the glossary for definitions of mission-driven and program-related investment. 26 www.blueorchard.com 27 www.responsability.com 28 www.calvertfoundation.org 29 www.dwmarkets.com 30 www.bamboofinance.com 27
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development in the US, or are made
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concern, and submitting and voting
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sustain land trusts, to a meeting o
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that are often excluded from market
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Some organisations that have used S
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it helps identify the critical sour
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and shareholder trust through posit
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Approaches Some commentators have i
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Wieland and Handfield (2013) sugges
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EthicalQuote (CEQ) tracks reputatio
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Displaying commitment to CSR is one
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Brand Differentiation CSR can help
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takes health and safety, diversity
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advance with the practice of CSR wh
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Stakeholder Influence One motivatio
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Regulation Fifteen European Union c
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jurisdictions. E.g., some jurisdict
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"Impact investments can be made in
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venture capital community. Investor
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countries via local intermediaries.
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determining views of affected commu
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Another measure of economic impact
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The Board for the CCEG was to inclu
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17 Love Relationship Online dating
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Social Value Act 2012 legislation.
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Development released a report outli
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Benefits and Costs of Social Impact
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UK On 18 March 2010, Secretary of S
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US Massachusetts: The second of two
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US Federal: The U.S. Department of
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would establish a five-year pilot p
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We are dedicated to finding ways to
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In the past, public monies have oft
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indicate that more Americans want t
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Youth" to "Opportunity Youth" in or
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income must file a Form 990. The fo
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In its first three years, SIF has a
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The Office of Social Innovation pri
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of Management at UCLA; and launched
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Notes _____________________________
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Investing for Impact Case Studies A
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Contents What is Impact Investment?
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What is Impact Investment? Impact I
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A case study approach in an asset a
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Segments of Impact Investors High T
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Foundations Like high net worth ind
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in the developed and the developing
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By creating mechanisms through whic
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Asset Allocation Framework Asset cl
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Cash Shorebank Deposit Program fina
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Mezzanine/Quasi Equity Instruments
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Venture Capital Bridges Ventures CD
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Real Estate JP Morgan Urban Renaiss
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absolute return (hedge funds) BelAi
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senior debt Root Capital Impact Fir
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Venture Capital Aavishkaar Impact F
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eal estate Ignia Impact First Inves
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senior debt Root Capital Layered St
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The New York City Acquisition Fund
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Appendix Methodology The Investing
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Websites •• Bridges Ventures: h
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Cash Quasi Equity Public Equity Buy
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SOCIAL IMPACT INVESTMENT: BUILDING
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Advocacy Foundation Publishers The
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XVI for Drug-Free Communities Landm
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Vol. VIII 2022 ComeUnity ReEngineer
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Vol. XV 2029 Inner-Cities Revitaliz
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The e-Advocate Journal of Theologic
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Issue Title Quarterly Vol. I 2015 I
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The e-Advocate Juvenile Justice Rep
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2018 - The Theological Law Firm Aca
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About The Author John C (Jack) John
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