Guest Blog Post by Jonelle Maltay about the Plenary Interview conducted with Gregory Da Re (Chief Strategist of Inter-American Investment Corporation) and Julie Muraco (Partner of Praeditis Group) at TBLI CONFERENCE EUROPE 2015.
Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE.
The interview moderated by Robert Rubinstein, CEO TBLI GROUP, posed some tough but vital questions about the use of platforms to further impact investing goals. The interviewees were Gregory Da Re who is Chief Strategist of the Inter-American Investment Corporation and Julie Muraco who is managing partner of Praeditis Group.
Much of the discussion surrounded the idea of building platforms for Impact investing and deal flow.
All participants were in agreement that understanding investor needs requires a lot of work and research. The fundamental problem as told by many investors is that there is a lack of investable opportunities, so this places the burden of proof onto organizations like the inter-American investment Corporation and Praeditis serving as somewhat of an intermediary between the investors and the projects. These organizations are tasked with bringing a quality pipeline to investors.
The problem is not a lack of projects according to the interviewees who asserted that there is no shortage of suggestions each week, however, the issue is identifying those with not only potential but visible bankability and scale. Platforms go far beyond delivering ideas because they also connect people and structure deals. But as Robert asked, despite the good intentions, the real question is: where are all the good deals?
People want investments delivered gift wrapped with a simple RSVP card, but the truth is that impact investing requires more time spent not only at the macro or industry level but also in the early stage development. There is a substantial amount of effort which goes into figuring out what is a good investment and this is where platforms can be useful. Investors should know whether they are seeking a direct investment opportunity to develop from scratch or one to scale at a later stage. Either way there is always room for more people to get involved in impact investing.
On the flipside sometimes getting involved in not as simple as sitting in an office in Zurich with no knowledge of anything that is happening on the ground, because impact investing is about more than putting up money, it’s about putting that money where your mouth is and really getting involved. You need to know the network, the suppliers, the local market and you need to realistically manage your expectations.
Transactional and informational platforms for impact investing
For this reason there are two types of platforms available: transactional and informational. The problem with informational platforms however, is that despite their great framework, there is no price discovery or ability to negotiate. So if they are not able to capture revenue, how can a deal be closed? The U.S. market has more investment banks and firms as well as family offices and these types of investors are seeking transactional value, but they don’t want their deals shopped around.
A clear business model needs to be established with more practical and transparent listing, licensing and scaling fees. Currently many private platforms want 10k just to allow an investor placement on their platform. Investors meanwhile want to see deal flow but they would probably need to sign up to at least 10 platforms and could easily spend 100k before even closing one deal. The business model needs to be more than just information, but there needs to be a guarantee of revenue.
How do we make impact investing more palatable to the mainstream investors?
An ever important player in the impact investing community is of course the DFIs, but people argue that by the time they are done conducting due diligence and studying the market, the investors will be putting forward their pensions. In all fairness though, measurement takes time, it requires information and it negotiation. So the question remains: how do we make impact investing more palatable to mainstream investors?
ESG and sustainability are attractive because they allow traditional investors to achieve their first priority of profit while also checking the ESG box to guarantee the second priority which is reputation. Impact investing on the other hand lacks the returns and the fiduciary duty that is needed to increase scale. Entrepreneurs are also seeing investments at the 1% level instead of the 99% level, but imagine for a second if Silicon Valley took the venture capitalist approach to philanthropy, how much more innovation and funding could be available.
Also at the very core, the investment consultants who happen to be the key advisors are the last ones to focus on impact investing. You have to convince everyone, turn them into believers or work around them, because people only get on board when the issue starts to hurt their bottom line. Many things need to change in favor of impact investing such as the regulatory environment, the scale of technology and platforms, and the mechanisms to measure the outcomes. Politicians need to get fully onboard, as well as corporations, financiers, and institutional investors who need to take a more proactive approach.
Corporations are being forced by their shareholders and exchanges to have sustainability mandates which are a positive pressure to move things in the right direction, and simultaneously universities are divesting from fossil fuels. This a testament to the small but meaningful steps forward which indicate that it is no longer just about ticking boxes. But for those investors who are still busy looking for long term track records, be aware that while impact investing is spending valuable time trying to find ways to market its concepts to a wider audience such as yourselves, the planet is at risk and we are low on time to save it, so hopefully it become palatable enough for your appetites before it’s too late.