Impact investing: philanthropy’s new frontier?

 

Crystal Hayling

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Dr Judith Rodin, President of the Rockefeller Foundation, recently visited Singapore and hosted a series of talks and meetings to stimulate and support impact investing in Asia.

Dr Rodin joined a heavy-hitting panel that included Asian Development Bank, International Finance Corporation, Rangsutra (a social enterprise), Credit Asia Capital and Impact Investment Exchange Asia (IIX). They addressed a capacity crowd at INSEAD business school where 100+ students, investors, philanthropists, bankers and academics listened to their call to action.

The speakers outlined what they perceive to be the many benefits of impact investing: social as well as financial returns, side-stepping inefficient or corrupt governments, unleashing entrepreneurism, and building enterprises that can be sustained without philanthropic support.

The idea that markets can be harnessed to solve social problems is not a new one, but I have observed that the concept holds particular resonance among the socially-minded wealthy here in Singapore and some parts of south Asia. My conversations with current and interested impact investors and fund managers suggest some potential reasons why this might be so:

1) The power of the market is indisputable and omnipresent. Year-on-year double-digit growth throughout Asia has decreased the percentage of the population living in poverty (though absolute numbers remain frighteningly high), and the creation of a middle class has been achieved and appears sustainable in some countries.

2) Fewer wealthy individuals have ‘cashed out’ of the enterprises that made their money. Wealth is more likely to come from family businesses and ideally successive generations continue to run those businesses. The money feels more like ‘working capital’ than an endowment.

3) Family offices are built to manage investments. Impact investing fits better within that organizational ethos. Language matters in establishing comfort and familiarity. ‘Structuring deals’ is more compatible with those in the family office than ‘making grants’.

4)  Many third generation high net worth individuals in their 30s and 40s have a finance or investing background. The generation of ‘new philanthropists’ here in Asia are ex-bankers, MBAs, Ivy/Oxford-educated and they feel called to use that unique skill-set to make their social impact.

Of course, among the converted sat plenty of skeptics. Many traditional investors questioned the entire category of impact investing – asserting that ‘social’ is another term describing higher risk and that true investors would never pay a higher price than necessary for an investment; everything else is philanthropy.

Indeed, the feeling of philanthropy was very much in the air, despite the finance lingo. While some people pitch impact investing with assurances that investors can put money here even if they don’t care about social returns, that proposition rings hollow.  The people I’ve met who are intrigued by impact investing care a lot. They are bringing their hearts and their minds to the proposition. And that impulse is very much grounded in philanthropy – from the Greek origin philanthropos: love of mankind. So while some impact investors dismiss the term philanthropy, still others believe they are redefining or adding new dimensions to it.

Impact investing – here or anywhere – is not for the faint of heart. Impact investing that achieves broad scale is a theory that has yet to be fully proved. But it posits an exciting possibility. As such, it requires risk-taking, strategy, patience, determination, humility and passion – passion to make a difference and chart new territory. This is not the settled homelands of philanthropy, this may be its new frontier.

In the coming months I’ll be interviewing key philanthropists and impact investors in the region to hear, in their own words, some of their successes, challenges, and motivations. I hope you’ll join the conversation.

Crystal Hayling is a consultant working with social enterprises and foundations in south-east Asia.

Tagged in: Asia Impact investing Judith Rodin Singapore


Comments (1)

Hugh Burroughs

Found your blog insightful,yet, discouraging. As I suspected, we have a long,long way to go on the path to successful social impact investing...We are tangled in the vineyards of language, meaning, and differences in intergenerational and cross cultural perspectives. Glad to know that you are paying attention to this "new frontier" and I look forward to your future blogs. Warm regards, Hugh Burroughs


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