NYU Stern is pleased to present the sixth issue of eVALUATION, Stern’s student-run investment newsletter. This issue focuses on impact investing – Reposted with permission.
“Sustainability is an emerging business megatrend, like electrification and mass production, that will profoundly affect companies’ competitiveness and even their survival”(1)
Impact Investing is a burgeoning corner of the market, and a topic not traditionally covered in any business school finance curriculum. In our view, leveraging businesses and capital to drive social change is a true source of value creation and is therefore worthy of deeper investigation. Impact investing represents a paradigm shift, allocating capital for measurable social and environmental impact as well as financial returns. It focuses on maximizing stakeholder value rather than concentrating exclusively on shareholder value.(2) In this sixth issue of eVALUATION, we hope to give readers detailed insight into the mind-set of impact investors – some of the most experienced and successful problem solvers. These success stories often do not receive the publicity they deserve, however, they carry poignant fundamental investing lessons.
Over the last 3 decades, philanthropy and government aid alone have proved insufficient to solve some of the world’s most intractable social and environmental issues – logically the world has turned to the financial markets for help. Impact investing in the US now totals $6.5 trillion, though still a fraction of the $43 trillion of all US assets under management. The vast majority of impact assets are invested in the public markets through socially responsible investing (SRI) and environmental, social, and governance investing (ESG) strategies. Deep impact investing — investing in privately held impact ventures and funds — represents just $60 billion worldwide.(2) Notably, a 2013 survey by the World Economic Forum suggests that nearly two-thirds of U.S.-based pension funds expect to make an impact investment in the future.(3)
It is our pleasure to introduce the sixth issue of eVALUATION, Stern’s student-run investment newsletter, covering a range of topics in the highly topical field of Impact Investing, in addition to few student-submitted investment ideas. We hope that you enjoy and take away a few new concepts. Finally, we would like to thank our interviewees for their time and contributions, as this would not be possible without their valuable insights.
ADW Capital’s 2020 letter: Long CDON, the future Amazon of the Nordics
ADW Capital Partners was up 119.2% for 2020, compared to a 13.77% gain for the S&P 500, an 11.17% increase for the Russell 2000, and an 8.62% return for the Russell 2000 Value Index. The fund reports an annualized return of 24.63% since its inception in 2005. Q4 2020 hedge fund letters, conferences and more Read More
Happy Reading! eV Editors
Ron Cordes – Executive Co-Chairman, AssetMark
An investment industry veteran of 30+ years, Ron co-founded AssetMark Investment Services and is currently Executive Co-Chairman of AssetMark with more than $25 billion of assets under management. He is a co-author of “The Art of Investing & Portfolio Management” and was recognized as an Ernst & Young Entrepreneur of the Year in 2005. Ron and his wife, Marty, co-founded the Cordes Foundation to advance market-based solutions addressing the world’s most challenging problems. He speaks on impact investing and managing an encore career and has been profiled in Fast Company, Forbes, Financial Advisor, Financial Planning and Private Wealth Management. Ron chairs the Executive Committee for ImpactAssets, a nonprofit financial services company, and is also co-chair of the Opportunity Collaboration. In addition, Ron chairs the board of Fair Trade USA and serves as a board member of MicroVest Holdings.
eVALUATION (eV): So what first got you interested in impact investing?
Ron Cordes (RC): You know I would say it was a bit of frustration. In 2006, I had sold the investment business I had started to a big insurance company and my wife and I created the family foundation we now operate out of today. We started getting all this advice about how a family foundation works, ‘you give away five or six percent a year and invest the rest to make as much as you can.’ That just didn’t seem to make sense to us. We wanted to figure out a way to have more of the assets in our portfolio really activated for good towards the mission of the Foundation which in our case was global poverty.
So we looked at it, and wondered why we couldn’t, in addition to giving away the five or six percent here, start putting investments on our balance sheet that look to solve the same problems that we’re trying to solve in our grants portfolio. And in 2006, a lot of the legal and consulting advice we got was that’s just not done, you know, sorry, that’s not the way the foundation works. We ended up learning from a couple of different legal teams that there was no legal reason why we couldn’t do it. We were advised to just do Program Related Investments (PRIs), but that’s still only carving up my 5% grants budget and I wanted to work on the other 95% percent. So by end of 2007, we decided that we would put 20% of our portfolio out in private impact deals. We knew we were early. We thought we might lose a little money on it but we were willing to take the risk and be a first mover. Long story short, we were fully invested through the crisis of 2008 and when everything was marked-to-market at the end of the year, the 20% of our portfolio that had been invested for impact, a lot of it in microfinance and working capital for small businesses, ended up outperforming everything else in our portfolio. So we went from 20% to 30% to 40%. In 2014 when Steph, our daughter, came aboard the foundation, we were almost 50% invested in direct private impact investments: funds, debt, equity, a real diverse portfolio. The other 50% was still sitting in a collection of portfolios that my prior firm was managing, very traditionally run. And it was really Steph who said why we aren’t 100%? And it was a really good question.
It’s a question driven by millennials. And if I’m honest about it, the reason we weren’t 100% is because we needed to keep half or more of our portfolio liquid in the public markets. I’ve been focused entirely on impact investing in the private markets and really hadn’t appreciated how the public markets had moved from the old Socially Responsible Investment (SRI) world of screens of exclusion into this new Environmental Social Governance (ESG) world, really focusing on the positive attributes of companies and focusing on the ability to quantify off-balance sheet information and use that as an investment advantage. So it was largely Stephanie who, along with our portfolio director Eric Stephenson, started doing the research on the public markets and basically demonstrating that the data was there and you could build the public markets portfolio in an ESG format and achieve a return that was consistent with traditional portfolios. So in June of 2014, we made the commitment to go 100%. Steph and Eric represented us at a White House gathering and over the course of the summer of 2014 we transitioned our public portfolio. So for the last two years our entire portfolio has been 100% invested for impact
eV: Incredible, a 100% impact and ESG-oriented portfolio!
RC: Yes, that was our own personal journey. Because I was someone who had come out of the traditional investment world, I found this role as the pro bono evangelist for this space and became an advocate, speaker and spokesperson for impact investing. I had been in business for 30 years and because I was coming in as a philanthropist with a family foundation portfolio, I had credibility from the social side as well.
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