Impact Alpha, 23 Dec 2017: Click here to listen to the podcast.
A decade ago, no one had heard of AirBnB, Uber, Spotify, Instagram or Snap. Or “impact investing.”
The term was coined, or at least adopted, at a 2007 gathering hosted by the Rockefeller Foundation at their Bellagio retreat center on Lake Como in the Italian alps. There was a follow-on Bellagio gathering in 2008 as well, so we’re straddling 2017 and 2018 for the 10-year anniversary.
But while those post-2007 sharing-economy and social-network startups have gone on to become proverbial “unicorns,” impact investing remains a largely boutique or marginal part of the worldwide financial markets, ever on the cusp of a tipping point.
Or does it? When we took up the question in our year-end Returns of Investment podcast, even our resident curmudgeon Imogen Rose-Smith acknowledged, “It has gained traction within the investment community.” Imogen, late of Institutional Investor magazine and now an investment fellow with the University of California, added, ““If we need to shift trillions of capital, it needed to be more than a niche, boutique-y conversation, it has achieved that.”
Imogen said the field may have taken a wrong turn, however, in focusing on definitions and standards and infrastructure, rather than “finding the thing where we could make a boat-ton of money in impact,” thereby proving the value-case, not building the plumbing.
Impact investing’s fundamental insights that social and environmental benefits are major drivers of value remains true, I argued. “But there’s been a little bit of a logjam in getting the whole thing up and running.”
The field’s original foundation “DNA,” I suggested, has contributed to the “ongoing tension between this philanthropic impulse of impact investing and the ‘impact alpha’ part of impact investing,” (have a drink, for those who are playing along), “in which impact can be market-beating.”
Podcast host Brian Walsh, who in his day-job heads Liquidnet for Good, suggested that market forces are indeed working. The “demand” from capital owners and managers of all sorts is activating “supply” of high-impact ventures, funds and other vehicles in which to invest.
Simply framing that way reflects the evolution of the industry away from its philanthropic roots, I suggested. Foundations tend to think of capital as the “supply” that is demanded by ventures and projects seeking financing.
That logjam would appear to be easing as supply and demand rise together and market mechanisms emerge. In that way, “impact investing,” as a term, need not be around in another 10 years.
“Should the true success of impact investing be measured not by how many people are using the term,” asked Brian, “but how responsive the future of capitalism is to the needs of people, community and the environment as a whole?”