Investing with Purpos while Living

Post on: 16 Март, 2015 No Comment

How Wealth Management can help turn Social investment into a mainstream asset class.

We are witnessing an increasing interest from HNWIs and ultra-HNWIs in mission driven investing investing for passion and purpose, not just growth. There is a growing focus for both investors and leading corporations around the world to effect positive change in a financially sustainable way. We are also seeing new trends in philanthropy, whether it is the rise of venture philanthropy or increased giving while living .

Both HNWIs and firms are beginning to measure success in a whole new way

(Source: World Wealth Report 2013-14)

My observations and opportunity:

Having spent a decade in Global wealth management across Morgan Stanley and American Express and managing few of the Fortune 100 clients in India, I believe, there is now an opportunity to develop a robust and sustainable market and to turn social investment into a mainstream asset class in India.

INDIA HNWI Wealth: $589 billion. Total HNWI Population: 153,000*

What is Social/ Impact Investments?

Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, social and environmental impact alongside a financial return. They target a range of returns from below-market to above-market rates, depending upon the circumstances. Impact investing occurs across asset classes — private equity/venture capital, debt, and fixed income.

The scale of this opportunity is significant. If just 2% of the Indian HNWI Wealth of $589 billion (Source, World Wealth report 2013) and, over time, 0.5% of traditionally managed philanthropy in the India, were devoted to social investment, this would unlock over $11 billion. This sum would do not include the grant funding that is currently made each year.

Taken together, these three sources HNI wealth, philanthropic foundations, grant funding and individual savings accounts could generate $11 billion for social investment. We have hardly touched $1 billion.

Progress in other markets suggests that these figures are achievable.

In the US, aside from significant interest in Programme Related Investment, a wide range of institutional investors is becoming active in social impact investment. TIAA-CREF, for example, with total assets under management of $400 billion, has devoted more than $600 million to social investment in the US across a range of asset classes, including debt and private equity. Some, like the social investment arm of Prudential of the US, have accepted the principle of sub-market financial returns on investments with a high social return.

According to JP Morgan, impact investments offer the potential over the next 10 years for invested capital of $400bn$1 trillion and profit of $183$667 bn.

Calvert Community Investment Notes have succeeded in raising $350 million from retail investors for social investment over the past twelve years at yields of 0 to 3% pa.

A vibrant social investment market depends on the active participation of a wide variety of investors. This, in turn, depends on investor access to a range of well-structured investments with a good track record of delivery, supported by an active infrastructure of intermediaries who research, evaluate and manage these investments. As the market becomes more confident in the availability of different forms of capital, so it will be possible to structure financial solutions that more closely meet the specific requirements of differing social-purpose organisations.

The Wealth management outfits can play a crucial role in building the necessary market infrastructure.

In so doing, it should build on existing organisations wherever possible, but it must also aim to boost the overall capacity of the market to generate investment opportunities.

Few observations to underpin the view that the market is ready for social investments:

Post 2008 financial crisis,

there is demand from organisations with social purpose for long-term capital to fund the growth of their operations;
there is scope to structure innovative propositions for investors;
there is demand from investors for a range of investments blending social and financial returns; and
there is a need for intermediation skills in raising and deploying capital.

In India, over the last couple of years, we have seen enough action in this space both, at the grass-root level and pan-India level. More than ten wealthy families have set up their own Social fund or invested sizeable amounts into social ventures. Many global families have set up a dedicated office in India, prime examples being the Melinda and Bill Gates Foundation, Omidyar Foundation and Michael & Susan Dell Foundation who have committed millions of dollars for social impact investments directly into individual projects or through other organisations working in the same field.

Very recently, the government of India mandated that 20% of all government procurements must be made from the MSME sector and 4% of all purchases must be made from firms run by SC/STs. This announcement acted as a boost to the Dalit Indian Chamber of Commerce and Industry (DICCI) to launch the DICCI SME Fund (DSF), a VC fund that has received SEBI’s approval to raise Rs 500 crore in the next 10 years.

The concept of a healthy marriage of financial result with social impact is attracting a lot of interest by the Indian HNIs. Yes We Can Social Ventures (YWC), a Bangalore based organization assists HNIs to identify and invest into companies that promote sustained economic development by supporting high-impact social entrepreneurs in emerging markets. People from YWC have interacted with many UHNI families, and, according to them, the clients are willing to allocate 2-5% into Impact Investments and Social Ventures.

These early signs clearly indicate that with a mere 2-4% allocation in portfolio, impact investing industry can steer significant sums of money to market-based solutions to the world’s most pressing challenges, including education, affordable housing, affordable and accessible healthcare, clean technology and financial services for the poor. Impact is ultimately created by the IMP ortant ACT s of life!