RENEW Strategies

Part 1: Impact investing: Transferring wealth, wisdom and values between generations

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Matthew Davis, CFA
| July 22, 2014

Parents, let’s begin with a quiz: Have you heard of impact investing (#impinv)? How about social entrepreneurship (#socent)? How about Ashoka, GIIN, ANDE, Kiva or Acumen? If you know what impact investing is, or of any of these organizations, your cool status with your kids may be higher than you think. If you're scratching your head right now, you’re not alone.


The impact investment movement is happening...it’s a hot new field of finance that blends social and environmental impact alongside financial returns. J.P. Morgan predicts that the impact investing market will equate to more than a trillion-dollar by 2020. J.P. Morgan also says the industry size has jumped 20% from last year to $46B under management.* You can bet big firms like Goldman Sachs are working hard to design impact investment products for their wealthy clients. The popularity of impact investing is also growing on college campuses around the country. Thousands of students at top tier universities are enrolling in impact investment and social entrepreneurship courses, attending conferences and seeking careers in the impact investment space.* Impact investing is heating up in Washington, D.C., too, where earlier this month a group of heavy-hitting philanthropists and investors met at the White House to pledge $1.5B to impact investing, and USAID, OPIC and SBA all pledged to support impact investing.* The trend and related industry is clearly growing.

So what is impact investing? There are many definitions related to the many types of impact investments and investors out there. But, here's my definition: impact investing is Warren Buffet meets Indiana Jones meets Mother Teresa. RENEW investments are made into high-potential, fast-growing companies in Africa where capital is scarce but opportunity is ripe. This is not like the billions being thrown into tech companies solving first-world problems. These investments are addressing real challenges around the world; think of a bread company in Ethiopia that employs 200 people and makes a good profit margin. Our investors use their capital to unlock growth in these companies, create jobs and generate financial returns. The social problems we are addressing lead to “healthy” economic development – growth in the middle market. It’s risky and deeply fulfilling. More formal definitions typically say something to the effect that impact investing is a field of finance that seeks to create measurable financial and social and/or environmental returns for investors.

In the U.S. we are about to experience the greatest transfer of wealth in history; roughly $30 trillion is going to pass from retiring Baby Boomers to their children during the next 30 years.* Yet from discussions I have had with parents and wealth managers, it is often difficult for the generations to connect around shared values and a vision for how that wealth should be managed. And from what I’ve seen firsthand, impact investing has the potential to be a powerful bridge between generations.

Contact us at renew@renewstrategies.com or follow us on Twitter @RENEWLLC to find out more.

References:
* Impact Investing: An Emerging Asset Class by J.P. Morgan
* Business as UNusual 2013: The Student Guide to Graduate Programs by Net Impact
* White House Round Table on Impact Investing
* Business Insider