Top five takeaways from my summer internship in Impact Investing
“So what did you learn?” my boss asked me in the final week of my internship.
After a summer of struggling to make well-formatted PowerPoint slides, finding out after my final presentation that a fund track record is ACTUALLY the fund manager’s track record, and navigating the connectivity challenges of West and Southern Africa, I realized that this final check in was the first time I had actually reflected on my experience. While my response was not nearly this well structured and succinct, here is a list of the top five things I learned this summer for the WSO community, my former employer, friends and family’s perusal:
1) People matter
To those of you who have been working in the industry for years, this comes as no surprise. However, for those of us entering finance from non-traditional industries that assumed it was more Microsoft Excel and less interaction, this was a pleasant discovery.
2) Bet the jockey
Again, this may seem obvious to people who have been working in investing for years, but I was shocked to find how important management was to investment decisions. I’m not saying that any of the incredible entrepreneurs I had the pleasure of speaking to this summer could run a successful pager business in 2014, but the conversations I had with them were one of the key components of my investment recommendations.
3) Time is money
Over the summer I worked with a number of extremely impressive and equally busy people. I had to quickly learn that their time and attention was a privilege. After 10 weeks, I became very good at preparing for internal and external interactions so that the discussions I was having were productive.
4) It’s a dance
One of my favorite entrepreneurs from my previous career in public health once told me that fundraising was a like a dance. You had to know when to move in and when to back away. I found this advice useful in my conversations with company leadership and was amazed by how good the partners at my organization were in this regard.
5) Trust yourself
If you are interning at a successful organization, which I’m sure many people reading this blog have done or will do at some point, some extremely impressive person has decided that you have the potential to one day become successful as well. You should operate under this premise. You will make mistakes, as I did, but as long as you learn from them and believe in yourself, things will work out.
Isaac Gross is a member of the 2015 MBA class at London Business School. Before coming to London Business School, Isaac worked for the Clinton Health Access Initiative in West Africa and the USA. In Africa, Isaac managed a $10 million HIV medication donation, which provided lifesaving medication to over 50,000 people. He also advised governments on cost reduction strategies. In one instance, he helped Ivory Coast save over $3 million by convincing policy makers to update their HIV treatment protocols and buy medication from low-cost generic manufacturers. Isaac is at London Business School because he wants to transition from public health to development finance. He is on the executive committees of the Africa and Net Impact Clubs at London Business School and enjoys playing golf, tennis and rugby. Isaac graduated from Brown University in 2007 with a Bachelors in Science in Psychology.
would be curious on your thoughts on the differences between impact investing and SRI. personally I have a bit of a bugaboo with SRI because it dramatically limits your universe of allowed investments. for example (and this is hyperbole), if the CEO of JNJ used to smoke cigarettes or the founder of Intel doesn't recycle, you can't own those companies.
impact investing always seemed to me like private equity/venture capital but with a focus on companies trying to do a social/environmental good. first, is that a correct assumption? second, obviously the goal of investing is return on capital, so how does one balance the utility from feeling good about helping out with the necessary objective of getting a competitive rate of return?
While I am far from an expert in this field, I personally think that the difference between impact investing and SRI is the intention. The goal of impact investing is to address social and environmental issues through commercial capital whereas SRI is more an attempt to include a social component into investment decisions.
Your description of impact investing is basically correct, but the challenge is that impact is hard to define. There's a great report on the Open Society Foundation website on impact investing in education that details the spectrum of impact investors, from philanthropic to finance first (http://www.opensocietyfoundations.org/sites/default/files/impact-invest…). So to answer your second question, the balance between social utility and ROI is dependent on the type of investor.
Altruistic Capitalists: Debunking Five Myths About Impact Investing (Originally Posted: 11/16/2015)
I first became interested in impact investing working for President Clinton’s Foundation in West and Central Africa. My hypothesis was that impact investing could improve essential services such as healthcare and reduce global poverty. As I learned more about the industry, I discovered that there were a number of misconceptions that discourage both investment and interest from the wider finance community.
Below are five myths about impact investing along with data that demonstrates the erroneous nature of these perceptions. I hope that this information will challenge standard misconceptions and create a more accurate and positive image of the industry.
Myth 1: Impact Investors Target Below Market Returns
When Deloitte surveyed US based pension funds with a combined $15+ trillion assets under management (AUM) in 2013, almost 50% of respondents expected impact investments to deliver below market rate returns. While there is a spectrum of potential returns for impact investments and expectations vary, roughly 80% of impact funds target market returns. In addition to fund targets being in line with the market, a recent report from Cambridge Associates found impact funds with less than $100 million AUM outperformed comparative private investment funds by almost 2x.
Myth 2: Impact Investing Is Too Risky
The Global Impact Investing Network (GIIN) website states some impact funds invest in “higher risk, early-stage … enterprises … with concessionary returns”. However, J.P. Morgan’s annual industry survey found that over 90% of impact capital is invested in post-venture stage companies. While there are good reasons that impact investors are focused on later stage deals, this lack of early stage funding can create an environment where there are fewer later stage opportunities since early stage entrepreneurs don’t have the necessary resources to prepare for growth stage investment. vc/">Capria, the first global accelerator for impact fund managers, is focusing on this funding gap to bring an additional $500 million to impact capital globally.
Myth 3: The Finance Community Does Not Support Impact Investing
While the amount of capital in impact investing is small compared to other asset classes, major players are bringing significant resources to the industry. All of the top full-service global investment banks, Morgan Stanley, J.P. Morgan, Bank of America, etc, have impact-investing arms and are members of the GIIN. Top private equity firms such as Bain Capital and KKR who manage over $75+ billion each are involved in the sector as well. Finally, Goldman Sachs recently agreed to acquire Imprint Capital Advisors, an impact-investing firm with over $500 million in assets under advisement.
Myth 4: Impact Investing Occurs Only In Emerging Markets
While the majority of persons living below the poverty line are in emerging markets, between 30-50% of impact investments are in Northern America or Western Europe. Furthermore, 90-95% of the capital managed by impact investors is from organizations headquartered in developing markets. This means that impact investments are more relevant to Americans and Europeans than some of them may believe.
Myth 5: Impact Investors Exploit The Poor
Impact investors believe in using market forces to improve and enhance lives, an important distinction from businesses that exploit people. For example, The Omidyar Network invests in Bridge International Academies, a chain of low cost private schools in Kenya. Bridge Academies provide superior educational outcomes than public schools at a cost of only $5 per month. Each school is profitable and delivers a quality product to Kenyans at a price they can afford. This profitability means that the ventures that impact investments support are sustainable. These companies stimulate economies that empower people to lift themselves out of poverty and do not require donations to subsidize the social value that they deliver.
Isaac Gross is an analyst at Capria, the first accelerator for impact fund managers. Isaac has spent his career working in the impact sector with organizations such as the Dalberg and the Clinton Foundation. Working with the Clinton Foundation he managed a $10 million HIV medication donation program in West Africa. While at D. Capital, the investment advisory arm of the Dalberg, he evaluated impact funds with $50+ million assets under management. Isaac has an MBA from London Business School and a BS with Honors from Brown University.
+1 Great topic to see on WSO. Goldman Sachs also has it's Social Impact Bond program.
Glad you enjoyed it! Blackrock also has an impact fund: http://www.blackrockimpact.com/, so hopefully all of these mainstream investors getting involved will have a positive effect on the asset class
What about the perception that comp in impact investing is lower than in regular investing? I'd imagine that that much must, at least, be true. Not something that matters much to me personally, because I'd quite like to get into impact investing for other reasons and I don't need much to live on, but it's something to consider nonetheless.
I'm not sure about that one to be honest. It would be interesting to see a comparison of comp by AUM. My guess would be that on average comp in impact investing is lower, but that may be a function of working for a $50M impact fund vs a $500M traditional fund
I'm also very interested to hear from anyone who has direct knowledge of comp in the field.
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