Saturday, October 12, 2013

GIIN Investor Forum 2013 and "Impact Investing"

I must admit that when I was invited (by Paul Blyth from Finethic microfinance fund) to attend this "Global Impact Investing Network" (GIIN) forum I was expecting to see a few NGOs, Charitable trusts and the financial worlds "great and the good" making a pitch for funds to invest in various third world "causes".

I had vaguely heard of "micro finance" and "impact investing" but didn't honestly think that it had much to do with me as a UK Pension trustee.

I missed the beginning of the forum and turned up at the Guildhall in the City of London on Thursday evening and sat in on a presentation followed by Q&A on "Scaling Impact Enterprises Through Innovative Platforms" by amongst others, the Rockefeller Foundation. This made my head hurt but made me realise that the presenters were deadly serious about making a real business case about genuine investment opportunities here and abroad, which not only offer potential good financial returns and also a social "good".

I had to miss yesterday mornings session but went to this afternoon's  debate on "Building Impact Investments into Institutional Portfolios" where 3 large financial institutions (Amercian, German and Dutch) explained why they were interested in and/or currently investing in impact funds and the pros and cons.

I put a question to the panel about the lack of knowledge about impact investing amongst pension fund trustees being due to the lack of interest by our investment advisers not only in impact investment but also in wider ESG (environmental, social and governance) issues. I think there was little disagreement in the hall with my views apart from some comments "depends who your advisers are". Well, in 20 odd years (sometimes very odd) I have been a trustee I have never known any investment adviser to voluntarily put ESG as a trustee agenda item. 

The final session was by Sir Ronald Cohen, who is chair of the G8 (or 10) Social Impact Investment Task force (picture). Ronald believes that it is possible for investors to make returns from Impact investment similar to those he made as a long term technology/IT venture trust manager in the 1970's and 1980's. It is "profit with a purpose".  He is described in Wikipedia as the "father" of venture capitalism and social investment.

Which from someone with Sir Ronalds track record is an exciting prospect for any long term investor but I still have some reservations about "impact investment". Firstly, is investing in private or voluntary organisations to provide public services such as probation a "good" or is it just about exploiting the public purse to maximise profit? 

Is impact investment really a side issue or even a fig leaf? What would really change many poor countries would be if the terms of trade were more favourable and fairer prices paid for their mineral resources and produce? 

The very high returns quoted by some impact investment funds are a likely financial "bubble" - what seems too good to be true, often is.  The lack of a credible track record for many of these funds and the investments they make is a real practical problem.

You get poverty and depravation in parts of the UK not only due to a lack of local capital investment opportunities but because our economic and politcal system is fundamentally unequal. How does impact investment address an unfair taxation system which arguably benefits the rich and penalises the poor?

On balance I think impact investment has the potential to be a force for good in our society and I want to know more about it. It is an example of responsible capitalism that progressives should support. There are more risks and higher charges involved but a small percentage of pension funds could be impact invested in exactly the same way that it is acceptable to invest in the traditional small companies and venture capital sector. 

I was told at the Forum that even in free market America, the banks are forced by law to have branches and make loans even in the very poorest areas - and they still make money for their investors from this.

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