When the Economist speaks, people listen. Simply by declaring that impact investing is going mainstream, the 175-year-old newsmagazine is helping make it so. On Wednesday, the magazine is hosting its first conference to demonstrate the shift.
That the Economist has lent its credibility to a broader view of capitalism may be more significant than anything actually said at the one-day event in New York. Many of the speakers on the agenda are fixtures on the impact circuit. Others are eager to associate themselves now that impact seems poised to have its moment. Below, ImpactAlpha’s cheat sheet to some of the bold-faced names to watch.
But first, what of that impact moment? Before Nov. 8, the direction was clear, as investors big and small got focused on environmental, social and governance indicators (dubbed ESG) as a way to mitigate downside risk. A hardier few ventured into proactive impact investing itself, in frontier markets, disadvantaged populations, women and girls, conservation and climate mitigation.
Hillary Clinton was poised to lead that parade. If Clinton was handcuffed to Wall Street, it was arguably that side of The Street that takes climate change seriously, acknowledges rising income inequality and thinks business has a role to play in addressing urgent challenges, locally and globally.
In contrast, President Trump and some members of his administration have what the Economist’s event organizers call “an earlier, more free-wheeling approach to investing.” That calls into question, they say, “whether there will be anything socially- or environmentally-responsible about the future direction of capitalism, at least the American version of it.”
Expect most speakers at Wednesday’s event to try to duck politics. When they can’t, they’ll try to build bridges by arguing that impact investing represents a free-market, not big-government, approach to social and environmental challenges. One signal to watch is whether a fiery few decide to confront the elephant in the room and declare their resistance on immigration, climate and other issues.
In the Belly of the Beast
Lest their high and ultra-high net worth clients (or their Millennial children) defect, all of the big banks have stood up impact investment offerings. Andy Sieg, head of Merrill Lynch Wealth Management, says Bank of America Merrill Lynch has “made impact investing a strategic priority” per client demand. Two years ago, BAML tested the appetite of its clients, raising $14 million from 40 clients for a social-impact bond that would return their capital if an ambitious job-training program successfully kept just-released former inmates from going back to prison. The bank says it has about $10 billion committed to impact investing. Jackie VanderBrug, a managing director of BAML's U.S. Trust, has a new book, “Gender Lens Investing: Uncovering Opportunities for Growth, Returns, and Impact.”
At Morgan Stanley, Audrey Choi has built an Investing with Impact program that represents $6 billion of the bank’s $2 trillion in assets. Most of Morgan Stanley’s “impact” assets are still in fairly conventional negative-screen funds that merely weed out the bad stuff. An exception: $100 million Healthy Futures Fund, a fund launched in 2013 meant to expand access to health care and affordable housing for low-income residents
Goldman Sachs took a buy-versus-build approach in 2015 absorbing Imprint Capital, an early impact investing boutique. Imprint co-founder John Goldstein, now a Goldman managing director, has built impact investing strategies for clients such as Kellogg and McKnight foundations, as well as wealthy individuals such as J.B. Pritzker. Goldman's clients have more than $6.4 billion in directed impact and ESG (environmental, social and governance) investments; the bank has deployed more than $4 billion of its own money in housing and other community development investments in the U.S.
Deval Patrick reversed the path taken by Mitt Romney, his predecessor as governor of Massachusetts, and joined Bain Capital after leaving public service. But where Romney took heat for the private-equity firm’s record of cost-cutting and job loss, Patrick is putting a pro-social face on the firm, raising its Double Impact Fund to invest in environmental sustainability, health and good jobs in U.S. communities. Patrick recently joined the board of the foundation of another impact-investor-in-training, Barack Obama.
Deborah Winshel moved from the nonprofit Robin Hood Foundation to Blackrock, the world’s largest asset manager with $5.1 trillion under management, to bring rigor to Blackrock’s impact measurement. She oversees about $200 billion – predominantly in ESG and negative-screened funds and appears to have the backing of her boss, Blackrock CEO Larry Fink. Fink made waves in his annual letter last year that exhorted companies to stop chasing quarterly earnings and focus on long-term value creation. Fink’s message this year was even more impact-oriented: invest in your workers.
Debra Schwartz. Schwarz, who tweets under the handle @impactbanker, is managing director of impact investments for the $6.3 billion John D. and Catherine T. MacArthur Foundation. A former investment banker, she is working to bring tools of the capital markets – risk mitigation, securitization, secondary markets – to the impact marketplace. MacArthur has made $500 million in impact investments in 200 different enterprises, funds and initiatives over three decades, and unlocked unlocked billions more to seed community development finance, preserve low-income housing, mitigate climate change.
Matthew Weatherley-White. Based in Boise, Idaho as managing director at the Caprock Group, a $3 billion multi-family office, Weatherley-White created a buzz last year for suggesting investment managers be required to opt out, not in, to ESG reporting. “Rather than ask people to fight their behavioral and cognitive biases by asking them to opt in, let’s ask the financial markets to embrace implied consent,” Weatherley-White said at the SoCap conference in San Francisco. “If we made ESG the opt-out setting, the system would change fundamentally and irrevocably.”
Fran Seegull. Seegull left impact investing advisor ImpactAssets last year to head the US Impact Investing Alliance, a policy effort backed by the Ford Foundation and Omidyar Network. Prior to the U.S. election in November Seegull, and DBL Partners’ Nancy Pfund, penned an open letter, calling on the presidential candidates to help scale impact investing as “a new approach that could unite us across party lines, across the country, and indeed, around the world.”
Abigail Noble. Noble championed impact investing to the wealthy and influential Davos crowd at the World Economic Forum. She is now exhorting wealthy families to devote at least a part of their fortunes to impact at the ImPact, an investor network founded by Noble, along with wealthy family members from the Rockefellers (Justin), Pritzkers (Liesel) and Sorensons (Jim), along with Tom Groos, the principal of his own family office, Tyden Ventures, and Tyden’s CIO, Josh Cohen.
Erika Karp. Karp left UBS as head of research to apply sustainable and ESG investing strategies at her own startup, Cornerstone Capital, one of the country’s fastest growing registered investment advisors. Karp’s has been a forceful voice for long-term thinking and investing: “We’re not going to tell asset managers what to do, but we are going to ask them to disclose what they do and how they do it.” she said in an interview. “I’d short ignorance.”
Jacqueline Novogratz. Novogratz started one of the pioneering impact funds, Acumen, which has invested more than $103 million in 96 companies that have reached 189 million people across Africa, Latin America and South Asia. She and Acumen invest what they call patient capital – high risk tolerant, long time horizon, flexible capital – which Novogratz says, “allows a company the time to understand the consumer demand, unit economics and path to scaling.”
David Blood. Half of Blood & Gore, the former head of Goldman Sachs Asset Management teamed up with former Vice President Al Gore to launch Generation Investments in 2004. The firm’s spectacular returns have done as much as anything to legitimize the notion that ESG features are a signal of long-term performance.
Andrew Kupers. Kupers didn’t know much about fund management when he launched Leapfrog Investments, but has now crossed the $1 billion mark in assets, with major infusions from OPIC and Prudential. Last year, Kupers poached the chief investment officer for one of Australia’s biggest pension fund, Richard Brandweiner, to help the frontier markets fund develop more institution-grade investment products.
Arif Naqvi. Don’t call them frontier, or even emerging, markets. “They’re growth markets,” says Naqvi, head of Dubai’s Abraaj Group, which manage $10 billion in private equity investments in Asia, Latin America, Middle East and Turkey, and largest pool of capital targeting sub-Saharan Africa. Investors targeting the global middle class such as the Gates and Skoll foundations, the International Finance Corporation and the European Investment Bank compete to get into Abraaj funds, which have returned 17 percent annually since inception in 2002.
Ela Madej. Madej is an example of the new wave of young tech entrepreneurs who are embracing impact as a movement. The name of her fund, Fifty Years, comes from a Winston Churchill essay that, in 1932, predicted lab-grown meat, cell phones, and artificial intelligence. With her partner, Seth Bannon, Madej invests in Y-combinator type startups that “if successful, will be both massively profitable and make a serious dent in achieving one of the Sustainable Development Goals.”
Nancy Pfund. Pfund is the head of DBL Partners in San Francisco, which last year raised $400 million for its third fund, putting it in range of traditional venture capital firms. Pfund is one of the leading proponents of the “no-tradeoffs” school of impact investing, which holds that there’s no need to sacrifice financial returns for social impact. DBL was spun out of JP Morgan Chase, originally as the Bay Area Equity Fund, and has targeted socio economic impacts, such as job creation, in addition to financial performance. Pfund’s most famous investments were her early stakes in both Tesla and Solar City.
Vineet Rai. Rai’s founded Aavishkar in 2001 to spur development in India’s underserved regions. It now manages over $150 million in impact investments in India, has launched a second, $75 million fund, targeting neighbouring countries like Indonesia, Sri Lanka, Bangladesh and Pakistan and, in January announced a $150 million fund focused on sub-Saharan Africa.
Neil Blumenthal. But enough about the investors. Meet Neil Blumenthal, co-founder of a unicorn B-Corp, Warby Parker, now valued at $1.2 billion. Blumenthal’s innovation: a buy-one-give-one model for hipsterish eye- and sunglasses. Buy a pair of Warby Parker’s shades and the company makes a donation to cover the cost of sourcing a pair of glasses for the non-profit social enterprise VisionSpring. Vision Spring might be even cooler than Warby Parker, training “vision entrepreneurs,” to sell its ultra affordable glasses, improving vision and creating income generating opportunities.
Dennis Price contributed reporting.
ImpactAlpha is a media sponsor of the Economist conference.
Photo credit: Tiago Aguiar