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Impact Investing Discussions Suggest Economic Returns And Social Impact Can Be Achieved Together

This article is more than 10 years old.

World leaders converged on the Beverly Hills Hilton this week to discuss the big issues facing us today. Among the topics discussed at the Milken Institute Global Conference was impact investing, which is where I focused my energy during the conference.

In one session, Dave Chen of Equilibrium Capital Group, En Lee, of Impact Investment Exchange Asia, Sari Miller of Leapfrog Investments and Eytan Stibbe of Vital Capital participated in a panel discussion led by Betsy Zeidman, an Adjunct Fellow at the Milken Institute.

You can watch the entire session here:

Zeidman defined impact investing as “Any investment that includes impact as an intentional part of the investment thesis.” She added that impact investments include a broad range of approaches, including a return of capital to “shooting for the moon,” noting that they can be in “any asset class, any sector and in emerging or in developed markets.”

Stibbe noted that housing is a key need in the developing world and that his fund invested actively in housing in Africa, partnering with governments there.

He went on to say that “any investment in Africa is risky,” then added that “the population wants us there.” His goal in investing in Africa is to offer something to the market that either doesn’t exist or that they can offer at half the price—or less—of the competing products currently offered in Africa.

Stibbe further explained that Vital Capital complies fully with the GIIRS (Global Impact Investing Ratings System) standards for measuring impact. He noted that his fund has provided the equity for $2 billion of housing in Africa with huge impacts on the local economies.

Miller noted that LeapFrog seeks returns in the “top quartile” of private equity funds with the caveat that “we haven’t had an exit, yet.” She acknowledged that “this is a long-term process.” LeapFrog invested in a company that provides life insurance to HIV patients in Africa, which has the effect of giving them access to a variety of economic opportunities because life insurance is often a criterion for credit. The company becomes actively involved in helping HIV patients to stay on their meds with the result that they have measured significant improvement in the health of their insurance customers over time.

Lee was asked about the difference between all venture funds and impact investors, with the questioner noting that all venture funds would claim to have economic impacts. Lee responded that the key difference is “intentionality.”

Chen added “authenticity” to Lee’s comment. He also noted that “If you ignore social issues you increase the risk in your portfolio.” He further explained the increasing importance of “outcomes based securities.”

A second panel, led by Steve Zecher of the Milken Institute Israel Center that included Anne Heyman of the Agahozo-Shalom Youth Village, Netanel Oded of the National Economic Council of the Israel Prime Minister’s Office, Eytan Stibbe of Vital Capital (again) and Tally Zingher of the MENA Investment Network.

You can watch the entire session here:

Zecher opened the session with a variety of data points to establish that, “There’s no substitute for private investment.”  There are a variety of sources of capital, Zecher noted, that contribute to the landscape for developing countries, including social investing, project financing, guarantees, outcomes-based financing and public-private partnerships that are each inadequate but when combined have the potential to catalyze the required growth.

Stibbe described his fund as being designed for Western investors and being compliant with regulations like the U.S. Foreign Corrupt Practices Act.

He related the story of launching a program called Aldeia Nova in Angola. In 2002, the 30 year civil war in Angola ended. The government wanted people to return to rural areas of the country to farm. Stibbe created communities based on Israeli Moshavs—not kibbutzim—that are communities where farmers own their own land but have a variety of shared resources to allow their farms to be more productive. So Stibbe created agribusiness that supported these communities of farmers and helped them increase their annual income from $500 to $5,000 per year.

Zingher described her efforts to see innovative technologies deployed in the developing world. One of her key initiatives is to get students involved in living and working in the developing world. While she hopes that many will stay engaged in international development work throughout their careers, she believes that many will not, but hopes that they will take with them a lifelong perspective that will allow them to see how innovative technologies can be used and marketed in the developing world.

Heyman described her experiences in Rwanda where she found 2.85 million orphans or vulnerable children. She suggested creating youth villages modeled on the Israeli villages created after World War II. She says, “Everyone said that’s a good idea. Could you pass the salt, please?” She realized that she would actually have to create a model village in order to move people to act. She went on to create the Agahozo-Shalom Youth Village. The first graduates of the youth villages are just now applying to college. Of 118 graduates, 117 passed the college entrance exams, none of whom could read or write when they entered the program just five years ago. Her greatest concern, she says, is that “this model isn’t sustainable. How do you finance it?”

After the meeting, Stibbe explained that he has agreed to work with Heyman to help make the program sustainable.

Stibbe noted that the first step is to teach these youth that “they deserve get education, food and healthcare; they don't need to work or struggle for it.”

Oded made the surprising observation that the Israeli government realized years ago that the “Israeli economy is missing out by not investing in emerging markets.” He then described the process by which they now seek and encourage investment in emerging markets like Africa.

There were a variety of other discussions related to impact investing and social capital that you can view online Milken Institute Global Conference website.

Clearly, impact investing is becoming a critical part of international development, especially in Africa. By combining compassion with capital—and its inherent demand for return—countries are beginning to make unprecedented progress toward creating brighter futures for their people.

Please help me continue this conversation by commenting below, on Twitter at @devindthorpe and on FacebookGoogle+ and my personal website yourmarkontheworld.com.