The Is Have It

Tuesday, October 2, 2012 at 9am
By John Friedman

Or should I say the “I”s have it?

The phrase Impact Investing is of relatively recent origin. Yesterday I attended an afternoon program about the Is (the eyes?) and learned all about how the older idea of SRI (socially responsible investing) has given way to II (not to be confused with the Roman numeral two) (gee, the two words, impact and investing, work well together, but when abbreviated? Not so much) (and then there’s the great song Is You Is or Is You Ain’t My Baby?, not to mention the greatest is of all).

Time was you could see the program description online at the site of the CFA Society San Francisco, but no longer. Here’s what the main paragraph said:

Over the last few decades, we have witnessed the trillion-dollar growth of Socially Responsible Investing (SRI) and Environmental-Social-Governance (ESG) strategies, which seek to not only provide investors a financial return, but also a social impact. However, the social impact from simply eliminating the bad or sin stocks from a portfolio of public equities is limited. Those investors who seek greater social impact (perhaps, but not necessarily, in exchange for some financial return) have turned to Impact Investing, a young and exponentially growing field spanning many traditional and alternative asset classes, including public and private equities, notes, bonds, and loans. (For example, buying a 3-year UNICEF note paying 4% which UNICEF can use to invest in new sustainable programs.) 

 

A few comments before I ramp-up into a wicked busy day:

   1. Portfolio Design. Non-correlated asset classes are the cat’s meow and the bee’s knees when it comes to portfolio design. There is some indication that this asset class might be highly non-correlated, so that, when, say, the sky is falling on every investment class following September the 15th of 2008, impact assets were not.

   2. Performance. One dominant point throughout the day: you needn’t give up on performance (risk/reward trade-offs) when going II. In fact, right now there are some nice paying loans in which the II investor (the III?), acting as the bank or micro-financier, is doing a lot better than the market.

   3. Dollars Change the World. I’ve always said that every dollar you spend is a vote for the way you want the world to be. Impact Investing can be that writ large.

   4. Mostly for the Very Well-to-Do. New investing ideas are always for the big players first/normal folks much later, if at all. Here too, though there is always Kiva et al. (none of which were mentioned yesterday).

   5. The Milieu. By its nature, it seems to me, the world and milieu of II is inherently a bit (or a lot) more progressive than the world and milieu of I — of plain ol’ investing. Also, I don’t go to these sorts of programs often, but it looked, via quick gander, that the gender ratio was close to 50/50. A far cry from the old-boy-on-the-golf-course network . . .

  6. The II Build-Out. A lot of talented, committed people are working very hard on building out the infrastructure of II. And a lot of them are apt to make a boatload of money doing it.

  7. The PF’s BS vs. the PF’s IS (wonky). Very wealthy people often set up private foundations. These things are creatures of the tax code, and are kinda neither fish nor foul, in that they split the difference between a public charity and a family trust. Because of that split, the tax code requires the foundation to each year spend 5% of its net investment assets on something worthy (it’s the tax code, so there are exceptions and complexities I gloss over here, as well as the definition of net investment assets). Back in the day when 5% was below a risk-free rate of return (e.g., the mid-90s), this was tantamount to paying out income; these days it is not. So back then a private foundation could have been invested entirely in conventional assets, and used the income off of those conventional assets to do its worthy activity. But how satisfying is that these days? Not so much, right? So our low interest rate environment may have actually have helped goad on, at least a smidgen, the II push, as foundations look to do good with their balance sheets as well as with their income statements.

*  *  *

Imagine, if you will, a handful of thousands of progressive, very wealthy folks, atop a well-laid infrastructure, doing good with their money through a new channel that, at least at first, is apt to be about as different from Komen and The American Cancer Society — Big Philanth, let’s call it — as it could be.

It’s another Rorschach test.

What’d’ya see?

 

 

756 words — less than an 8 minute read sans links

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  1. Posted by Sonya on Wednesday, November 28, 2012 at 11pm
    Great post! I'm glad you were able to attend the event; thanks for sharing your thoughts.