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hello and welcome to knowledge at Wharton my name is Nick Ashburn I'm the director of Emerging Market strategies
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at the Wharton social impact initiative and today we'll be talking about impact
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investing and emerging investment products in Emerging Markets uh I'm joined by Margo Kaine who is the vice
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president of strategy at the Calvert Foundation thank you Margo for joining us and welcome to knowledge at Wharton
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thank you for having me so let's just start at the beginning uh what is the Calbert Foundation and where did you
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start that's a great question so we started thanks to the genius of our Founders Wayne syby and John Guffy who
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had started the first socially responsible mutual fund company in the US Calver Investments and they really wanted to
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figure out a way to capture all of these all of these incredible investment assets that are circulating through our
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markets at any given time in the economy um and direct them towards really high impact Community Development Investments
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both both in the US and internationally at the time most funds and most funds under management were really limited to
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investing in public equities and public debt uh and the kinds of high impact projects that really needed capital in
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low-income communities especially had no access to that kind of capital so they created the community investment note
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which is a way to basically Bridge those pools of capital circulating in the much
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larger you know trillions and trillions of dollars Capital markets and and use that money to invest in the relatively
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smaller Niche Community Development and International Development markets globally great and of course we know
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that impact investing is kind of a large umbrella um in the industry but you all
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play a pretty unique role in that can you talk a little bit more about Calvert's role in Impact investing and
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and where you see your place in it yeah so we really view ourselves as one of the pioneers of the movement before it
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was called impact investing it's had a lot of monikers uh over the years we've
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been doing it for 20 years we've raised a billion dollars from thousands and
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thousands and thousands of investors and the investors part is really where it gets interesting because we raise money
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from what's called retail investors which means everyday people in the United States who have access to you
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know a checking account or a savings account or a brokerage account um basically you can buy our security
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depending on the state that you live in and um that's pretty unique in the impact investing world most people who
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invest for social impact partly because of regulatory barriers partly just because of the economics of it they are
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high net worth people or they are institutions um and so we are able to really tap into a much broader Market
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which makes us very unique and gives a totally different window to the capital markets for high impact investments in
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the US and in emerging markets and because you've been at this for so long you've really seen the
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industry evolve um what are some of the big changes that you and calber Foundation have seen over time and what
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are the trends that we should be paying attention to now oh it's so exciting
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right now I mean I think there's so much interest and there are clearly um they
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teethed at interest you know billions of dollars are starting to move into investing for social impact so it's a
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really exciting moment right now where you have this huge range where you have you know philanthropic institutions um
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that have been doing this also for 20 or 30 years uh paired with entities like Goldman Sachs or black rock that are
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just kind of getting into it but have massive resources from Wall Street and and they're investor based to bring to
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bear um so it's a really exciting moment but uh there's a few there's a few areas
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that the industry broadly is going to have to solve for and these are some of the trends that we're picking up on and
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one is the issue of scale um a lot of let's say you know if you take the impact investing today
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where you have an average fund size in any given Market of I'm just picking a
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number at random 30 million dollar and you have let's say Pension funds that
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have recently you know taken a look at the recent Department of Labor uh issuance and the orisa guidelines that
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they can now invest for social and environmental purposes as well and they want to make investments in Impact
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investment fund well a pension fund's minimum investment size is like $75 million and you have these tiny f funds
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and you have these large pools of capital and there's very little intermediation between the two so one of
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the things we see happening in the industry is more people are focusing on building the channels of intermediation
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which is sort of a step-by-step process to allow that Pion fund money um or the foundation endowment money to invest in
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a better Society for everybody the on the other side of you know the equation basically which is where the money is
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being invested we see a great explosion in a lot of different markets it's not
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just Financial access anymore which is you know micro finance and small business lending um uh renewable energy
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is a really exciting space right now uh affordable healthc care services and Innovative Healthcare Tech is a really
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exciting area right now food access and Food Systems and processing um is a really uh fast growing area which really
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Taps into the earlier uh fair trade and um producer small holder agriculture Investments that many people like root
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Capital have been doing for 20 odd years um so this just I mean it's going all
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over the place and it's really exciting so thinking of your your track record
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you're seeing these Trends what would you say are some of the challenges and opportunities that
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you in your role as vice president of strategy are seeing and would like to incorporate into the long-term strategy
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well and short-term strategy for Calver Foundation yeah I think the biggest one is recognizing the speed of change of
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these markets market and that we are part of the front line in developing new markets and the second you've developed
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that market the second you've proven that Community Development Finance or that micro Finance is
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bankable you know commercial capital is going to come in and that's a good thing
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that's the capital markets doing what they're supposed to do right which is
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money seeking an investable opportunity and we're on the proving edge of that
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and every time you've proved a market you have to move on to another market so
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Innovation is a necessity um so it's finding a business model that that enables you to you know prove out a
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market in increasingly short amount of time move on to the next one be incubating the third one at the same
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time and still make your margin uh because like any other Financial intermediary we live in our margin um
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and that's really challenging so that actually leads me to competition in your
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space so we've seen we're seeing this explosion of interest in Impact investing we're definitely seeing that
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at Wharton between students faculty alumni other outside stakeholders that look to Wharton um so how do you view
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competition in your space um especially considering what areas in the in the country and in this market that you play
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in yeah so most of it's good we want more competition because on the money raising side of our business we spend
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the vast majority of our time trying to explain to people in financial services what we are we are always is a square
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peg in a round hole so the more Square pegs there are out there the more you know will generally start to be accepted
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and this will start to be a movement and more mainstream unless you know this is
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this Niche little thing over here in the corner uh which by the Numbers it it still is um and then in terms of the
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investment area competition is always good right it's good for the borrowers
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or the in people who are raising Capital because it lowers their cost of capital
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there is sometimes a lot of distortion though in the market where you have a lot of subsidized Capital that can flood
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a market sometimes and that is not good because it will crowd out private Capital uh so there's like there's some
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nuances to that but generally speaking thinking about how vast the resources of the capital markets are the more
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competition the better because we've just got to keep growing the pie and what do you think you're seeing
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globally so we're seeing impact investing being a real Global movement um and you know what do are you focused
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only on the US or are you focused on other kind of Emerging Markets too yes so about half of our portfolios invested
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in Emerging Markets we only raise our money in the US uh that's how we're
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presently structured but we often will co-invest with International investors and funds uh from Sovereign development
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funds to private International foundations so I think one thing we're seeing is a lot more institutional
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Capital being mobilized particularly in the EU and in the UK um we're seeing a
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lot of interest in places like India to support impact investing uh it tends presently to be limited more in the
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equity markets um which makes a lot of sense partly because of the you know stage of development in Emerging Markets
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um and you often need good Equity markets to be functioning before you can have good debt markets function and also
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it's where you can take a lot more risk um and investors are willing to Bear
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more risk so I think right now you're seeing a surge certainly in the private
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Equity Arena uh less so in the fixed income space which is really where where we tend to specialize so we're often
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kind of the first or the you know the only investor uh in a leverage fund where there's a lot of equity investors
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and we're coming in with a little little piece of uh of debt in there um which is
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great because we get to learn a lot but um one of the biggest Trends is this collaboration idea which is that you
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need multiple kinds of capital you have to stack the capital um in order to meet
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the market needs that you're trying to get to and that usually includes Grant
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capital for technical assistance and capacity building because if that market if affordable educ private education in
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India were already investable chances are the banks would already be investing in it and so there's this capacity on
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the ground that really needs to be built while you get very creative with the sources of capital that you're using to
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really responsibly meet the needs on the ground and that's probably the biggest
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Trend we're seeing so thinking of those Capital stacks and you know the importance and the use of
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Grant Capital does that does that have implications for the long-term viability of a market how do you use Grant Capital
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effectively in in the capital stack it's a really really good question and it's
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really critical I think to the survival of the broader industry and there are good examples and bad examples but what
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I always remind myself is that for example the US government subsidized our coal industry and our rail industry
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for decades if not centuries and no one thinks of those as subsidized Industries
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right so everything you know a lot of the markets we think of today as uh Market Industries have been subsidized
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or continue to be subsidized in in various ways um so so the question of subsidies is a very complicated one but
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thinking kind of about the next level of granularity about Grant capital and where it's most useful um is there's a
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there's a couple of things that go into that I think one is leverage so understanding that for every dollar of
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grant money depending on how it's used it can either go straight into funding a
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program or straight into building a building or it can be leveraged five 10 20 times if you're pairing it
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appropriately with private Capital as that risk piece as that first risk-taking piece and that's probably
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one of the most effective ways Grant Capital can be used and then I think on the other side it's it's essential in
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funding Innovation and r& in the industry what kinds of interventions really work to improve the quality of
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life for people that are living in poverty or that are moving out of poverty what sorts of Civic
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infrastructure what sorts of public goods and services are most important investors don't have the resources to
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invest in that kind of R&D and say okay this intervention Works in these scenarios and here's how we're going to
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replicate and scale them Capital will come to that call to action but philanthropy really and public services
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really have to fund it um and that's not unique to impact investing in in general
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I mean R&D in most Industries requires some some level of subsidy I think those
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are two areas where we really need philanthropy to be active what are the challenges um and correct me if I'm
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wrong what are the challenges you know if you're working a lot with retail investors to doing this type of work and
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fitting into that Capital stack with retail investors yes so we do have um kind of an extra barrier of pro burden
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of proof to demonstrate um in addition to all of the reporting both the financial reporting that you
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know all investors would require and the social impact reporting um which is another area I think philanthropic
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resources can play a much bigger role and and they are um and so you know we we can't ask our investors to take the
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kinds of risk that institutional investors will take that foundations will take um because people are
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investing their Savings in us and the state regulators are looking at that and saying hm you know what are these people
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doing with these people's savings um and so we have to be incredibly prudent
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fiduciaries we have to have a really strong balance sheet we have to repay everybody 100% And on time which we've
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always done in the past um and it's not you know it's not the kind of scenario
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where you can have a major misstep and go through restructuring and have everybody kind of be okay um there's no
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room for error when you're this small um and this niche in the retail investment
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Market we have to have perfect performance and that's a pretty high barrier when you're on the front line of
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a lot of these um you know experiments with society and capital markets so one thing that I think is interesting to
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note is is the number I can't it the number escapes me but of money that flow
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through remittances so people that have left their countries live in the US and still send money back home so a huge
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Market for retail in of of retail investors potentially are there products that you've developed that focus on that
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segment of the market yes in a in a certain way so we have developed a uh two diaspora engagement investment
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campaigns where we've created portfolios of Investments or Investments to be um
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in certain markets and in this case one of the markets is India and I'll use
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this as my example um so we're investing in various social Enterprises in India
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and we are engaging with and talking to the indian-american diaspora who we know
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is highly highly active in investing and giving um with you know a lot of very targeted um ideas about where they want
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to put the money into their home regions or countries uh to say hey here's one
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way that you can engage in investing for social benefit and social good and economic development in India alongside
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all of the other Suite of activities that you do so it's very complimentary to the person who is sending remittances
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who is investing in their you know family business back home who's buying land and plans to retire um back in
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India this is just part of the kind of The Suite of financial activities that someone can engage in and remittances
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really do give a very interesting um framework for how you engage people on this topic and one thing about
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remittances that is really challenging and interesting is that um most people don't consider that
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investment so the you know powers that be in the worlds of development and government look at remittances as
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investment they constitute a really substantial part of most um most of the economy they definitely operate as
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Investments right they fuel businesses they pay for school education etc etc they fuel cons consumption um but the
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person sending the remittance doesn't think of it as an investment and that is
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key because it means that that interaction of a remittance where someone thinks of it in their kind of
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their family bucket their household bucket it's not the same part of the brain and the pl part of planning that
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that person is using when they think about their Investment Portfolio so it's
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two separate conversations that are quite hard to map together even though functionally that money is doing the
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same thing on the other side sounds like how we've we've looked at I make my
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money on one side and give it away philanthropically on the other exactly it's that you know it's that distinction
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and it's really problematic and it's not unique to Diaspora communities um there
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was an interesting study about this uh a few years back that I think you know was
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culturally you know socially agnostic that said um people use this side of the brain for giving and this side of the
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brain for investing um but the brain as we know is very plastic and I think we can rewire that tendency and the feeling
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of rewards when you know you've aligned your Investments and your financial security with the kind of social values
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that you believe in and espouse in every other area of your life it's just an
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extension of being a conscious consumer if you have a bank account you're an
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investor that money is not just sitting in that bank account that bank is using that money to invest in what they think
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is investable so I really hope that you agree with that because otherwise your money is being used to invest in things
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that you might not support and that pool of assets your investment assets as an individual in the US is the large single
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largest resource in the country it outstrips public budgets it outstrips philanthropic budgets so if we don't
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move that money productively for society whether it's here or you know internationally um we're never going to
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bring the right set of tools to the social problems that we try to fix coming back to the future of impact
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investing and and your work at the Calbert Foundation are there do we have enough Talent if this is if this
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movement is to scale what are the leadership qualities for the future we do not have enough
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talent and part of that is because a nent industry uh is really bad at developing their bench uh so so there's
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not a lot of kind of middle management uh or you know MBA recruiting programs where you have a leadership uh training
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you know for two months in each department no one really everyone's running really lean and really fast so
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it's highly entrepreneurial it's fun and it changes fast but there's not ever
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enough Talent um so you know the multi-disciplinary nature of impact investing cannot be
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overstated a pure Finance is not enough of a background pure development and philanthropy is not sufficient
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background um so so there's like this merging of understanding you know how to
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intervene at a social level how to connect social interventions to fight poverty or to improve the environment
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with how the capital markets work work and there's a incredible amount of expertise in how you develop product and
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how you tap into various distribution networks that is really missing in the impact investment Market um with also
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the functions of running funds um so you know Loan Servicing you know it um things that are really basic you know
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really you know treasury management you know all the sorts of things that people
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tend to relegate to oh that's what people in Banks do um those are really critical for the industry and so you
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need these people who have who are really excellent at those functions who have a multidisciplinary exposure where
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they've worked at a foundation and they've worked at a bank or they've
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worked for city government and they've worked for a pension fund to really join
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in on the impact investing movement and to get it to get it to where it needs to
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go well I'm just really excited personally for the future and it sounds like you are too thank you so much for
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joining us um this has been Margo kanaine with the Calbert foundation and thank you again thank you so much for
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having me Nick [Music]