Wayne Silby

Impact Investing: Frontier Stories

Many people think I started out as a do-gooder. Not exactly. When I graduated
from Wharton, my dreams were focused on independence, including the financial
种类. Right out of law school, with my Wharton buddy John Guffey, I started one
of the first money funds in the country. Our financial engineering strategies creat-
ed the money fund that was not only the highest yielding but also the safest. 这
first Calvert fund, started in 1975, used guaranteed floating Small Business
Administration [SBA] loans. Money rolled in. Within a few years, still in our 20s,
we were managing Washington’s largest mutual fund. Then I went to a conference
that changed my life.

This conference, on a post-hippie commune in New Hampshire, was on the
topic of Right Livelihood. Right Livelihood is a Tibetan Buddhist concept, part of
the eightfold path for leading one’s life. It’s about integrating one’s work with one’s
价值观, in contrast to the old Western model of making money whatever way we
can and then donating. 所以, here I am at the conference, thinking my life’s work is
getting another half percent financial return for our investors over the next guy.
Hmmmmm!?? It got me thinking. From these ruminations was born Calvert Social
Investment Fund: the first socially responsible investing (SRI) fund to comprehen-
sively integrate my generation’s aspirations with the investment process. The guru
from the conference center, Marc Sarkady, served as the first chair of our advisory
council, and that council’s vision attracted amazing people.

As the first public fund to do social investing, we turned a few heads and got
some strange looks: promising as we looked, were we still on some drugs from the
’60s? Even the Securities and Exchange Commission asked questions about a fund
that would set aside 1 percent of its assets at below-market rates for the purpose of
furthering social justice. They also asked what the word “holistic” meant in our
proposed prospectus. We got used to being seen as a little weird.

Wayne Silby is Founding Chair of the Calvert Funds, A $15 billion investment man- agement company in Bethesda, Maryland. He is also a Cofounder of Calvert Foundation, Impact Assets, Syntao Consulting (北京), The Ice Organisation (伦敦), Social Venture Network, and the Emerging Europe Fund for Sustainable Development (OPIC). He has been doing impact investing since the late 1980s, hav- ing created the first social venture fund, 并在 1994, Investors Circle named him Social Venture Capital Pioneer of the Year. He lives in Washington, 直流电. and spends a great deal of time in China. Opinions expressed are the author’s sole responsibility. © 2011 Wayne Silby innovations / 体积 6, 数字 3 3 从http下载的://direct.mit.edu/itgg/article-pdf/6/3/3/704678/inov_a_00076.pdf by guest on 08 九月 2023 Wayne Silby But the relevant tenet of our fund model was that we should also set aside some monies for the seedling companies of the future: our Special Equities pro- 公克. These are private companies, not yet big or publicly available, that have products or services that, in the larger, more holistic context, meet real human needs and have the potential for a double bottom line return. WHAT IS IMPACT INVESTING? I don’t know any best definition of “impact investing.” It’s a mosaic: many tiny efforts to do the right thing with private investment, including an extra effort that our commercial markets lack. 例如, about eight years ago we invested in the China Environment Fund in Beijing. Only six investors showed up for this small fund and its cause, and we were the only U.S. investor. People again thought I was a bit weird— thinking the Chinese would ever care about their environment. Now the fund is in the hundreds of millions and is the “go to” clean-tech fund in commercial China, with investors knocking on its door. I have no doubt that this was an impact investment when we made our first investment— and when it gave us outsized returns. But now that it is com- mercially successful and con- tains new funds, I wonder if it is still an impact investment. As the first public fund to do social investing, we turned a few heads and got some strange looks: promising as we looked . . . even the Securities and Exchange Commission asked questions about a fund that would set aside 1 percent of its assets at below-market rates for the purpose of furthering social justice. that The motivations for impact investing are many. The Wall Street problem of recent years—how to make money with money, especially other people’s money, without regard for the real human consequences—has caused our whole society to rethink the status accorded Wall Street bankers and financial engineers. We who are the knowledge workers benefiting from the free market system have lurking concerns about our chosen system and its growing divide between rich and poor. We can donate to nonprofits, but impact investing gives us the chance to use some of our investment dollars to make a world that offers more equal opportunities. Micro-finance is an example of creating dignity among the underserved, by lend- ing based on character and eschewing handouts. A few years ago I was speaking to the high net worth crowd. Now most of those in my audiences have a goal of finan- cial stability or better. But how much do we need? How much is enough? At what 4 创新 / Impact Investing Downloaded from http://direct.mit.edu/itgg/article-pdf/6/3/3/704678/inov_a_00076.pdf by guest on 08 九月 2023 Impact Investing: Frontier Stories point do we become fiduciaries for society as a whole, given the extra wealth we have? I envision a day when the impact advisor turns to the rich client who just asked if he can get a high return on an investment: “You need a double-digit return? Did you just become poor or something?” backers The Grameen Growth Guarantee Fund is a good example of how impact investing works. Grameen Foundation USA involves a number of wealthy people who guaranteed a $35 million credit facility at Citibank. The backers did not need
to put up any money. Grameen arranged loans between local banks and local
micro-finance institutions, using a Citibank letter of credit based on those guaran-
tees. The outcome? Dozens of new relationships were created among local finance
institutions working together on a near commercial basis to get about $200 米尔- lion in loans to the poor. Grameen took some, but not all, of the risk in the financing between the local groups, as the lenders are required to have some skin in the game. Five years later, the program for the first guarantee “fund” is nearing its end and has had no losses, or “calls” on the backers. 所以, it’s a great exam- ple of enabling terrific social impact by simply lending access to one’s balance sheet. I envision a day when the impact advisor turns to the rich client who just asked if he can get a high return on an investment: “You need a double- digit return? Did you just become poor or something?” Another pull for me is the fun of working with talented and high-minded peo- ple to see how investment work can fit into promoting the greater good. Young people are drawn to these broad and interesting conversations about real total impact. At Harvard Business School, the most popular club is not VC, 聚乙烯醇, or hedge fund, but the social enterprise club. Many traditional venture capital investments are just about “faster cheaper better,” or how winners can take from losers. Impact investing allows you to think about real needs, about market gaps, and about what just might be truly transformational portfolio investments. In my experience, it is too easy to be limited by jumping to business models and ways to monetize the value proposition. Some of my best projects came from concentrating first on what was needed and worrying about the financial model later. Calvert Social Investment Fund was started primarily as the chairman’s pet project as a model for the right thing to do. Now assets in Calvert social funds are in the many billions. Five years ago I met a Chinese student who was working on corporate social responsibility (CSR) in China for his PhD. My first impulse was to just give him some money so he could disseminate his work via a website, ETC. But then I thought about ongoing financing needs, and I suggested we start a consult- ing company in Beijing, drawing on another weird idea: that the Chinese would innovations / 体积 6, 数字 3 5 从http下载的://direct.mit.edu/itgg/article-pdf/6/3/3/704678/inov_a_00076.pdf by guest on 08 九月 2023 Wayne Silby In my experience, it is too easy to be limited by jumping to business models and ways to monetize the value proposition. Some of my best projects came from concentrating first on what was needed and worrying about the financial model later. care about CSR. Syntao now has 20 人们, has been quite profitable, and has had an impact with its sustainability reporting. One of our clients is the largest cell phone company in the world, 和 550 million users. In a meeting with their head of corporate strategy, we discussed how CSR principles could help them find underserved markets and also strength- en user relations. And last month, I was in a meeting with the chairman of one of the largest financial in China, newspapers which is interested in how their 1,000 reporting com- panies and Syntao could work together. These are all successful impact investments that I might not have made if my mind was ini- tially cluttered with money-making concerns rather than real long-term needs. FINANCIAL RETURNS Of course we would all like to save the world and make a lot of money doing it. But I think leading with that thought does not serve our nascent movement. I have great respect for one impact investor in Atlanta who expects that his portfolio will actually lose some money, given that his investments aim at high risk and high social impact but modest return. Most traditional venture funds make their money with their one or two home runs. Impact investments are often second- or third- base hits when they do work: consider the trade-offs involved in going after mar- kets that involve the poor, or experimental ventures, or those with no lock on intel- lectual property. All those factors can limit the potential return. 幸运的是, the impact marketplace provides a wide spectrum of risk and double bottom line returns. And often the social objective helps with returns. At Calvert Foundation, our affordable mortgage loan portfolio performed much better during the crisis compared to mortgages from banks that didn’t focus on their clients’ real needs. The biggest determinant of return may actually be the skill of your investment manager in selecting and supporting the companies. Venture investing is a hard business and you learn from your mistakes. My first fund, Calvert Social Venture Partners, was started in the late 1980s. We were really taken with the social visions of the companies we invested in. 大错! Better to fall in love with the talents of the entrepreneurs and management in making those visions a reality. 我们也 6 创新 / Impact Investing Downloaded from http://direct.mit.edu/itgg/article-pdf/6/3/3/704678/inov_a_00076.pdf by guest on 08 九月 2023 Impact Investing: Frontier Stories did not have an industry focus. Now we have more humility about what we know, and generally go into companies that have knowledgeable co-investors. We will, 然而, support first-time fund managers and their funds, as we believe we understand that business, as long as we are familiar with their market segment. 例如, we were the first institutional investor to commit to LeapFrog, which targets the new micro-insurance market. Our commitment got them rolling, opened other institutional doors, as it has in several other instances, and resulted in a $150 million raise. We believe this is an important way that
Calvert Special Equities can help the impact marketplace, as institutional investors
are rarely very entrepreneurial and are therefore leery about supporting first-time
funds, which could involve a career risk.

ON METRICS

Measuring social metrics has become fashionable in recent years as this industry
goes into a growth stage and the consultants arrive. I find this a challenging area to
pin down and have enjoyed reading Jonathan Lewis’s blog on the topic. We once
invested in a mortgage on a job retraining center for convicts. The recidivism rate
跌倒了, and we tried to calculate that financial return to society, on top of the 7 每-
cent return we received. We weren’t able to be very precise, but we knew we were
doing the right thing. Calvert’s research department helps with the overall public
policy trends that are sometimes relevant to a particular investment. We had one
heated discussion over a health-care technology company that was really more
involved in working the old system to get higher reimbursement rates than in find-
ing solutions that were perhaps less elegant, but much cheaper and still reasonably
effective. To me, it’s critically important to ask the questions, but we are still a bit
reluctant to make investments only where the social returns lend themselves to
standard quantification.

We do consider the social impact against the expected financial return. 作为一个
extreme example, we invested in a Latin American company that is promoting stu-
dent loans that allow people to follow their passions rather than having to choose
a job that lets them pay back the loan the fastest. The business model calculates the
payback as a percentage of the graduate’s actual future income. So people who are
likely to go into teaching will likely pay back less, and those who will go into busi-
ness or a profession may pay back more. This is a highly risky first-time model, 但
we decided to make a small investment, as this could change the education fund-
ing game for those not enfranchised in the traditional system.

THE FUTURE OF IMPACT INVESTING

The last few years have seen an explosion of interest in impact investing. 这
SOCAP conferences have attracted outsized crowds. We used to call it “social ven-
ture capital” and “community investments.” The Rockefeller Foundation has pro-
vided a lot of infrastructure support, especially by promoting the “impact” name,

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Wayne Silby

which has broadened the tent. Just this year, the White House has backed confer-
ences on the impact economy. SBA and OPIC are two government agencies with
an impact agenda recently formulated with funds to support the industry. 和
conferences are now being held in Hong Kong and many other parts of the world.
But some structural issues surround the process of moving monies into this area
in a way that is commensurate with the buzz.

第一的, under ERISA, the pension governance act, the Bush-era interpretation
deems that all investments must be in the sole financial interest of the beneficiar-
是的. Some movement is afoot to change this act so that retirement funds have the
option of putting up to 2 percent of their money into impact investments, 在哪里
the concept of beneficiary interest is expanded to include the quality of the socie-
ty into which the beneficiaries are to retire. This seems like a no-brainer but . . .

Another big pot of money is the sovereign wealth funds (SWFs). In an article
in Pensions and Investments Asia, I asked, “Sovereign Wealth Funds: Do They Get
它?” How socially useful is it for the hedge funds to play zero-sum games, or for
buyout funds to add leverage, both of which are typical investments of SWFs? 它
seems that creating an investible world, with some monies set aside to ensure long-
term sustainability and social stability, would slightly improve the overall risk-
adjusted returns of SWFs and reduce their volatility. (And I will nominate for the
Nobel Prize in Economics the person who can prove this.) I had a discussion with
the treasurer of the World Bank that focused on a big study about SWFs investing
in food security in Africa. The proposal aimed to make a modest return that
respected the social needs of local people, with oversight from the bank. 然后, 我
was with some people from the China Sovereign Wealth Fund and asked them
about policy to ensure food security. At least one of them said it might be better to
invest at 6 percent and be able to feed their people than to invest in a buyout fund
在 10 percent that could risk the stability of the Chinese government due to
increasing food prices.

One additional trend is attracting the public into this field. Why should only
accredited investors have the opportunity to express their values through their
investment dollars? Calvert Foundation has succeeded in raising money from the
public to invest in a portfolio of MFIs, CDFIs, and other local loan funds that are
putting financial resources into the community. Members of the public can partic-
ipate in a relatively safe way with $1,000. But the trend in investing is toward being
more granular: more targeted, less diversified, going for more specific projects that
resonate with the individual investor. A more targeted approach makes it possible
to unlock more funds; this is a goal of ImpactAssets, with its innovative donor-
advised fund. Some firms are working on this challenge, part of which relates to
the SEC and blue-sky state laws. But I envision a day when people can talk, on their
resumes and their Facebook pages, about their favorite impact investments as an
expression of who they are. While it’s important that money get to the right proj-
ects, it’s also important that people get to be a part of this new cultural meme.

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