The Brief: Systemic risks of the Magnificent Seven

The team at

ImpactAlpha

Greetings, Agents of Impact! In today’s Brief:

  • How magnificent are the seven big tech companies? 
  • Simplifying remittances in Egypt
  • Catalytic climate capital for Jamaica
  • Immigration’s economic benefits

Featured: Systemic Risks

Rising risks as the S&P 500 is outsourced to the ‘Magnificent Seven.’ When the S&P 500 blew past 5,000 for the first time on Friday, it was again powered by the group of tech powerhouses known as ‘The Magnificent Seven.’ Apple, Amazon, Microsoft, Alphabet, NVIDIA, Tesla and Meta are crushing their competition, churning out gobs of cash and seven-handedly driving the stock market. But the split screen was jarring after last month’s Senate hearing in the US, on child exploitation via social media. “You have blood on your hands,” South Carolina Sen. Lindsey Graham lectured Meta’s Mark Zuckerberg, who apologized to harmed families, including parents of children who died by suicide. Two days later, Meta’s blow-out earnings added more than $200 billion to its market cap. “What’s good for the Mag Seven may not be good for other companies, or for society at large,” Benedict Partners’ Billy Gridley writes in a column on ImpactAlpha.

  • Beta stewardship. A growing school of diversified investors with long-term horizons have become concerned about “systemic beta,” the risks posed by a single stock – or in this case seven stocks – to their overall portfolios. “We are greatly concerned that a narrow, company-only view of shareholder primacy fails most shareholders, is inconsistent with modern investing practices, and threatens markets’ utility to allocate resources,” wrote Rick Alexander of Shareholder Commons, which is supporting a lawsuit against Meta. The high-profile class action lawsuit in Delaware alleges the Meta board of directors breached its fiduciary duty by ignoring the impact of company operations on diversified shareholders. 
  • Climate concentration. The Magnificent Seven are collectively valued at $13 trillion, more than the next 40 companies in the S&P 500 combined. Every one of the Magnificent Seven is involved in the application of big data and AI to real-world climate solutions, including making, marketing, managing and monitoring. Meeting the challenge of climate change will require those capacities and more, Gridley says. “What mix of Big, Medium and Small companies, in competition with each other, will lead to the best outcomes for society?” he writes. “Will we run that race with the Magnificent Seven, or with climate start-ups and the “thousand climate unicorns” still to come?” 

Dealflow: Financial Inclusion

First Circle backs Egypt’s Balad for cross-border payments. Egyptians living abroad send more than $30 billion a year to friends and family back home. Most of the money, from Gulf states and Jordan, is sent via cash payments through money dealers. Despite a global fintech boom, Gulf countries make it hard for immigrant earners to set up formal bank accounts. Balad is working to improve efficiency and cut costs for both unbanked senders and unbanked receivers. First Circle, a women-led African fintech investor, reupped its investment in Balad. The company is raising a seed equity round.  

  • Business to business. First Circle first invested in woman-led Balad in 2022, amid Egypt’s currency devaluations, which were triggered by plummeting foreign investment. The company is building a network of money transfer points at post offices and banks and partners with mobile bill payment provider Fawry. Balad allows money senders to initiate transfers in US dollars, protecting receivers from currency volatility, First Circle’s Selma Ribica explained. 

IDB Invest directs $100 million to modernize Jamaica’s electricity grid. Jamaica’s energy utility Jamaica Public Service Co. has been working in recent years to improve the reliability of the island country’s power supply. IDB Invest will support continued grid modernization, as well as renewables, energy storage and EV charging. The catalytic investment group of the Inter-American Development Bank brought $50 million from regional commercial bank CIBC Caribbean into the transaction

  • Energy transition. IDB Invest’s investment pillars include supporting clean, climate-resilient energy access in Latin America and the Caribbean. This year, it has backed three other energy deals in the region, including a green hydrogen project in Paraguay, a solar-hydrogen power plant in Barbados and grid modernization in the Caribbean region of Colombia.
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Dealflow overflow. Investment news crossing our desks:

  • TPG Next, private equity giant TPG’s investment initiative to support diverse managers, signed on as an anchor investor in Black-led Visualize Group. (TPG)
  • Social Investment Managers and Advisors, or SIMA, raised $131 million in a green bond issuance to finance commercial and industrial solar developers in Africa. (SIMA)
  • Brazilian agri-business lender Traive raised $20 million with backing from BB Impacto, the impact investing fund of Banco do Brasil managed by Vox Capital. (Globo)
  • Dutch recycling company Bollegraaf Group made a strategic investment in UK-based Greyparrot, which develops computer vision analytics software for waste processing. (TechCrunch)
  • Jaguar Land Rover’s venture investing arm, InMotion Ventures, invested $1.2 million in Energy Source, a Brazilian lithium battery recycling venture. (Startupi)

Short Signals: What We’re Reading

🗽 Immigration alpha. US economic output was greater and the deficit lower last year because more people were working, “mostly because of higher net immigration,” according to the nonpartisan Congressional Budget Office. The immigration boost means GDP will be $7 trillion higher and tax revenues $1 trillion greater than they would have been otherwise. (CBO)

  • Betting on migration. “Migration is not a problem in search of a solution; it is a solution waiting to be unlocked by thoughtful investment of resources and effort,” writes Jason Wendle of the Global Development Incubator. (SSIR)

🚀 Boosting sustainability allocations. More than 50% of individual investors plan to boost allocations to sustainable investments in the coming year, spurred by climate urgency and the performance of sustainable investments, a Morgan Stanley survey found. Three-quarters of investors are interested in strategies that achieve market-rate financial returns while also considering positive impact. (Morgan Stanley)

👋 When to exit, responsibly. In deciding when to exit an investment, British International Investment assesses whether its continued presence will make a contribution to the future impact of the business. The development bank may even exit before a predetermined impact has been achieved “if we thought that impact would be achieved without us.” (British International Investment

🌳 Natural capital investing. More than 50 asset management firms are now running strategies that invest in forestry assets, farmland and “natural climate solutions” such as forest carbon capture. An estimated $384 billion to $845 billion in annual spending is required to safeguard the natural environment, compared to current annual spend of $154 billion. (Bfinance)

🏈 Sustainable Super Bowl. Allegiant Stadium in Las Vegas, the host of yesterday’s Super Bowl, was powered 100% by renewable energy. A Nevada desert solar farm owned by NV Energy and developed by EDF Renewables with 621,000 panels and battery storage supplied the power. (Business Insider)

Agents of Impact: Follow the Talent

Featured job: Emerson Collective is hiring an investment associate in Washington, DC. The associate will join the organization’s asset management division to conduct investment research and impact evaluation and support end-to-end investment management.

The Vistria Group welcomes Lisa Davis, previously with PGIM Real Estate, as partner and head of asset management of its real estate team… Alex Munoz, a former principal at GI Partners and Goldman Sachs, joins Galvanize Climate Solutions as asset management vice president… New York State Insurance Fund is on the hunt for an ESG and sustainable investment associate and an investments senior lead.

Living Cities seeks a director for its Racial Wealth Equity Center of Excellence… Mission Driven Finance has an opening for a remote senior data and analytics engineer… The Principles for Responsible Investment is hiring a head of product research and innovation in London… The Access to Nutrition Initiative is recruiting an impact investment manager in the Netherlands.

The San Francisco’s State University’s Center for Ethical and Sustainable Business will host 2024 Impact Investing Days forum, Sunday, Mar. 17… VC Include will begin accepting applications for this year’s Fellowship for Impact Fund Managers this Friday, Feb. 16… The GIIN’s inaugural West Coast Forum will take place June 3-4 in San Francisco.

👉 View (or post) impact investing jobs on ImpactAlpha’s new Career Hub.

Thank you for your impact!

– Feb. 12, 2024