The Brief | May 10, 2018

Bridging capital gaps, J.P. Morgan’s sustainable-investing lead, localizing impact investing, BlackRock’s EM impact fund

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Featured: The Impact Alpha

Finding the right tools for the job — of bridging capital gaps. Investors sometimes have a problem finding the right tool for the job. Early-stage climate innovations that may not pay off for decades? Not a good fit for venture capital. Working capital for smallholder farmers that feed the vast majority of people in many countries? Too risky for most banks. Medical breakthroughs to treat neglected diseases that primarily afflict patients in poor countries? Not interesting to most biotech investors.

It turns out one group of mission-driven investors may have a tool to help fix such market failures and capital gaps. For 50 years, philanthropic foundations have expanded the use of “program-related investments,” or PRIs. Flexible and patient capital – high-risk or low-return or both – is often what’s needed to build markets failed by traditional institutions. But PRIs are a klugey hack and at best a transitional mechanism for bridging capital gaps. It’s time for a much broader range of investors to step up and build — and fund — the right tools for the big jobs ahead.

Read David Bank’s column, “The Impact Alpha: Finding the right tools for the job – of bridging capital gaps.

Signals: Ahead of the Curve

“Localization” of impact investing is driving global uptake. In Japan, impact investors are popularizing the approach in the context of disaster relief. In the U.S., leaders draw on a tradition of community development finance. In Europe and Canada, the solidarity economy gives it traction. “Communications around impact investing requires careful understanding of local context to be effective,” say David Wood and Katie Grace Deane, authors of “National Advisory Boards and Impact Investing,” a new report from Harvard’s Initiative for Responsible Investment on national-level action to grow impact investing.

  • 17 National Advisory Boards… (of the Global Steering Group for Impact Investing) are now educating countries and regions about impact investing, promoting the field and developing policy recommendations.
  • Policy recommendations… The Australia NAB wants more support for social entrepreneurs. In Germany, the NAB wants legal protections for companies that pursue social goals in addition to economic ones. Italy’s NAB wants to lower taxes for impact investments. The U.K.’s wants government support to create a “social impact and scaling fund.”
  • Policy successes… Japan is creating a social investment wholesalerfunded by unused bank assets. The U.S. reformed regulations to open up more philanthropic and pension assets for impact. France pushed a policy to require big pension plans to back social enterprises.
  • Background… The Global Steering Group grew out of the Social Impact Investment Taskforce, a group formed during the U.K. government’s 2013 G8 presidency. Original NABs included the U.K., Canada, France, Germany, Italy, Japan, the United States and Australia. Newer NABs include Portugal, Finland, European Union, Argentina/Uruguay, Brazil, India, Israel and Mexico.

Agents of Impact: Follow the Talent

Jessica Matthews has been named the new head of sustainable investing in wealth management at J.P. Morgan Private Bank. “Our clients increasingly want to align their investment capital with their mission and philanthropic goals,” the bank said in a statement. For the last decade, Mathews led the mission-related investing practices at Cambridge Associates, where she helped clients including the Annie E. Casey Foundation, the F.B. Heron Foundation and the Meyer Memorial Trust build and execute their impact investing strategies. Matthews has also co-authored a number studies on impact investing financial returns, including 2015’s Introducing the Impact Investing Benchmark.

Dealflow: Follow the Money

Swedish pension fund commits $100 million to BlackRock’s emerging markets impact fund. Swedish pension fund AP1 has prodded BlackRock to create an emerging-markets equity fund that accounts for impact without compromising on financial return. Get the details.

Colombian education-finance firm Lumni acquires Paytronage to boost U.S. presence. Lumni offers “income share agreements,” under which it funds a student’s college costs up front for a fixed share of the student’s income after graduation. Read more.

U.K. government funds 10 social impact bonds. The U.K. government awarded the money to projects that provide education and training to young people searching for jobs. Dig in.

World Bank and Credit Suisse partner on disruptive technologies for development. The idea is to find ways to use blockchain, 3D printing, and the “internet of things” to solve development challenges. Read on.

— May 10, 2018