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The Power of Knowing (what you own)

The Power of Knowing (what you own)

| February 18, 2018

Last week, our firm welcomed to Atlanta four investment managers that each specialized in a different segment of social impact investing.  They were diverse in their approaches to the general task at hand.  And the sizable crowd that gathered to hear their comments was at least as heterogeneous as the firms were different from one another.

Looking across the room, I saw three or four generations of both investors and activists, represented across races, wealth levels and genders.  It didn't seem like a normal investment conference, but more of an intersection (collision?) of societal trends.  

So, I decided to take a stab at understanding the issues that are driving the explosion of interest in so-called Impact Investing. 

I welcome your thoughts, too...

It's not hard to see that empowerment is an exciting thing.  Investors are discovering the new levers of "control" over their investments. And the investment industry is beginning to understand how to address investors' greater level of activism, and desire to personalize. New strategies and investment vehicles are proliferating.  Conferences like this simply open the tent a little wider to let investors better know what their options are.

"Impact" is still a new, second dimension to investing.  So, there's still a novelty factor.  While understanding the social impact of one's investments will someday seem ordinary, for now, it is still unique to learn now many jobs have been created by your investments, how living standards have been improved, or how many affordable housing units have been built. 

Word is slowly spreading to mainstream investors that "impact" isn't a financially-inferior option.  After decades of being told that you "can't have your cake and eat it too", it's especially powerful to learn that the financial returns of impact investments can be highly competitive with more "ordinary" choices.  Even at the higher-risk end of the spectrum, private equity firms aren't targeting lower returns from the investments they underwrite in the impact sphere. It has sufficient "cred" to get investors' attention.

Impact investments can be very human, so we can better relate to them.  As portfolio (solely financial) investors, it is normal that most of our investments exist at a scale that is hard for us to imagine (revenues in the billions), and whose operational details are beyond our understanding (explain to me Google's business lines.)  So, learning how our capital has great significance to a farm or small business, and knowing how it helped them grow, is at a scale that we can comprehend.  It's at a human scale.

We shouldn't underestimate the power of simple "access" and knowledge.  How often do we really get to really understand how our investments are chosen and what they really are?  Sure, we own mutual fund XYZ and (might) know its historical track record, but how often do we get to meet the managers and learn how they make decisions? And how often do we understand ANY of the specifics of their holdings? This level of access is new to most investors.  

Of course, what investors don't own can be as important to them as what they DO.  This is still a big driver for many impact investors. Yes, exclusionary investing is the oldest form of impact investing.  But new vehicles to are helping investors to practice this in a prudent manner, improving the likelihood that their plans will meet their financial needs.

Perhaps it's not surprising that investors are taking more control of their finances.  Traditional pension plans are practically extinct, and discussions around the health of the Social Security system is hardly confidence inspiring. Meanwhile, societal challenges are getting more intense discussion from the population but governments have less funding to address them.

The ball is on our court on both counts -- financial and societal.  And social impact investing is carving out a niche for those who want to positively affect both.