UPTICK IN INTERESTED STUDENTS ACROSS THE WORLD’S LARGEST AND MOST IMPORTANT MBA PROGRAMS
Hodgepodge or not, the phenomenon is significant and important. Be it Goldman Sachs’ purchase of Imprint Capital, Blackrock’s launch of an impact fund, or the venture capital and private equity dough pouring into the space, times are changing. Adding more fuel to the impact investment inferno was the publication of the most recent Global Impact Investment Network (GIIN) annual Impact Investor Survey. Regarded the most robust of its kind, the survey offered some interesting numbers. Since 2014, deals from 158 leading impact investors have surged from about 5,400 to the 12,000 or more expected in 2016. At the same time, the total value of the deals leapt from more than $10.5 billion in 2014 to an expected $17.7 billion this year. What it boils down to is an increasing amount of capital being pumped into socially minded companies and a growing number of decision-makers keen on socially minded investments.
“Relative to five years ago, we see a significant uptick in student, faculty, and alumni interest,” says Matt Segneri, director Harvard Business School’s Social Enterprise Initiative. “More people are pursuing internships, conducting research, getting involved in competitions, and transitioning to impact-focused funds.”
‘IT WILL BE AN ANOMALY FOR ONE NOT TO MEASURE ON THREE DIMENSIONS INSTEAD OF TWO’
According to Matthew Weatherley-White, co-founder and president of CAPROCK Group, a $3 billion multi-family investment fund, one should look to modern portfolio theory as a pertinent example. Described as a “genius” by both Gray and Clark in separate conversations, Weatherley-White says modern portfolio theory was the dominant staple for future Wall Streeters in business schools from the 1950s on, until it played a significant role in the 2008 market crash. If impact investing can become the next modern portfolio theory, our world might be in better shape than we imagined, Weatherley-White says.
Gray sees it the same way. “My personal prediction is, this is just the way investing is going to get done in the future,” he says. “It will be an anomaly for one not to measure on three dimensions instead of just two. Instead of risk and return, it will be risk, return, and impact.”
This is the next natural evolution in the capital market, Weatherley-White insists. “Capital markets are an evolutionary animal. I think we forget that,” he says. “And we think of it as this static inter-relationship between prevailing social norms and the flow of capital through society. But it’s not static. It’s constantly evolving.”
AN IMPORTANT TRANSFER IN WEALTH AND POWER
Perhaps the most fascinating piece of the evolution is a transfer of wealth and positions of power from a (generally speaking) white male baby boomer population to an increasingly diverse millennial generation. It’s no secret more women are in MBA programs than ever before. Put together the fact that women and millennials seem to be the most interested in impact investing and the blossoming programmatic offerings at elite B-schools is the market response to that growing interest.
Amit Bouri, CEO of the GIIN, says the wealth and leadership transfer combined with the influx of millennials in the area will have a “profound impact on fueling the growth of impact investing going forward.” What’s more, “people are going to continue to be thinking about how they can invest in different ways and actually align their capital with their values,” he says.
“The interest among students,” Bouri continues, “is absolutely energizing and holds a tremendous amount of promise for the future of the impact investing market.”
Weatherley-White agrees. “If you look at the projected $42 trillion of wealth that will be transferred over the next 30 years from the predominately male baby boomers to their wives and children, who are mainly millennials, and you look at who’s driving impact investing, it’s women and millennials,” he explains. “You have to ask yourself, is this an inevitable trend of the capital market? Because the people who have the capital will be asking for it. And I think the answer is yes.”
AT LEAST TWO HURDLES PERSIST
At least a couple of factors prevent the complete explosion of impact investing. Both can, should, and likely will be solved within academia.
First is the infancy and lack of proof in the field. Second is the job outlook. “My concern is there is a ton of hype around impact investing,” says Danielle Reed, who has since taken a job in the Mission-Related Investing department of Cambridge Associates’ San Francisco office. “In a very short period of time the industry has become quite well known. But there has been little to show for it.” As Matt Segneri points out, the words “impact investing” have yet to be published in the Journal of Finance.
But the beginnings of proof are arriving. Last year, Gray and a Wharton team produced the first significant piece of evidence in a study that examined 53 private equity funds with a total of 557 individual impact investments. “You now have a little bit of ammunition to say it’s at least worth the look,” Gray told We See Genius when the report was published. The ammunition was that in “certain segments” of the market, there were no trade-offs for financial and social returns.
Morse is sitting on some more significant research that will be published soon. In a “very preliminary” draft of the completed research she shared with We See Genius, investment impact funds performed 13.5% higher than benchmark traditional venture funds. The robust report examined around 3,500 partners, 5,000 funds, and 25,000 capital commitments. “Our results imply that the supply of impact funds is incomplete, failing to meet demand,” the abstract of the report reads.