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hello and welcome to knowledge at
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Wharton my name is Nick Ashburn I'm the
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director of Emerging Market strategies
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at the Wharton social impact initiative
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and today we'll be talking about impact
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investing and emerging investment
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products in Emerging Markets uh I'm
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joined by Margo Kaine who is the vice
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president of strategy at the Calvert
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Foundation thank you Margo for joining
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us and welcome to knowledge at Wharton
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thank you for having me so let's just
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start at the beginning uh what is the
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Calbert Foundation and where did you
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start that's a great question so we
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started thanks to the genius of our
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Founders Wayne syby and John Guffy who
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had started the first socially
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responsible mutual fund company in the
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US Calver
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Investments and they really wanted to
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figure out a way to capture all of these
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all of these incredible investment
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assets that are circulating through our
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markets at any given time in the economy
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um and direct them towards really high
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impact Community Development Investments
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both both in the US and internationally
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at the time most funds and most funds
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under management were really limited to
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investing in public equities and public
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debt uh and the kinds of high impact
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projects that really needed capital in
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low-income communities especially had no
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access to that kind of capital so they
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created the community investment note
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which is a way to basically Bridge those
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pools of capital circulating in the much
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larger you know trillions and trillions
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of dollars Capital markets and and use
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that money to invest in the relatively
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smaller Niche Community Development and
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International Development markets
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globally great and of course we know
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that impact investing is kind of a large
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umbrella um in the industry but you all
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play a pretty unique role in that can
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you talk a little bit more about
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Calvert's role in Impact investing and
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and where you see your place in it yeah
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so we really view ourselves as one of
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the pioneers of the movement before it
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was called impact investing it's had a
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lot of monikers uh over the years we've
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been doing it for 20 years we've raised
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a billion dollars from thousands and
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thousands and thousands of investors and
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the investors part is really where it
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gets interesting because we raise money
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from what's called retail investors
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which means everyday people in the
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United States who have access to you
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know a checking account or a savings
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account or a brokerage account um
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basically you can buy our security
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depending on the state that you live in
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and um that's pretty unique in the
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impact investing world most people who
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invest for social impact partly because
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of regulatory barriers partly just
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because of the economics of it they are
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high net worth people or they are
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institutions um and so we are able to
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really tap into a much broader Market
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which makes us very unique and gives a
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totally different window to the capital
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markets for high impact investments in
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the US and in emerging
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markets and because you've been at this
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for so long you've really seen the
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industry evolve um what are some of the
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big changes that you and calber
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Foundation have seen over time and what
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are the trends that we should be paying
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attention to now oh it's so exciting
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right now I mean I think there's so much
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interest and there are clearly um they
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teethed at interest you know billions of
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dollars are starting to move into
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investing for social impact so it's a
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really exciting moment right now where
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you have this huge range where you have
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you know philanthropic institutions um
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that have been doing this also for 20 or
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30 years uh paired with entities like
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Goldman Sachs or black rock that are
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just kind of getting into it but have
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massive resources from Wall Street and
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and they're investor based to bring to
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bear um so it's a really exciting moment
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but uh there's a few there's a few areas
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that the industry broadly is going to
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have to solve for and these are some of
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the trends that we're picking up on and
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one is the issue of
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scale um a lot of let's say you know if
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you take the impact investing today
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where you have an average fund size in
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any given Market of I'm just picking a
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number at random 30 million dollar and
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you have let's say Pension funds that
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have recently you know taken a look at
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the recent Department of Labor uh
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issuance and the orisa guidelines that
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they can now invest for social and
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environmental purposes as well and they
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want to make investments in Impact
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investment fund well a pension fund's
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minimum investment size is like $75
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million and you have these tiny f funds
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and you have these large pools of
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capital and there's very little
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intermediation between the two so one of
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the things we see happening in the
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industry is more people are focusing on
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building the channels of intermediation
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which is sort of a step-by-step process
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to allow that Pion fund money um or the
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foundation endowment money to invest in
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a better Society for everybody the on
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the other side of you know the equation
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basically which is where the money is
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being invested we see a great explosion
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in a lot of different markets it's not
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just Financial access anymore which is
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you know micro finance and small
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business lending um uh renewable energy
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is a really exciting space right now uh
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affordable healthc care services and
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Innovative Healthcare Tech is a really
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exciting area right now food access and
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Food Systems and processing um is a
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really uh fast growing area which really
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Taps into the earlier uh fair trade and
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um producer small holder agriculture
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Investments that many people like root
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Capital have been doing for 20 odd years
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um so this just I mean it's going all
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over the place and it's really exciting
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so thinking of your your track record
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you're seeing these
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Trends what would you say are some of
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the challenges and opportunities that
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you in your role as vice president of
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strategy are seeing and would like to
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incorporate into the long-term strategy
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well and short-term strategy for Calver
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Foundation yeah I think the biggest one
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is recognizing the speed of change of
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these markets market and that we are
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part of the front line in developing new
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markets and the second you've developed
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that market the second you've proven
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that Community Development Finance or
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that micro Finance is
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bankable you know commercial capital is
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going to come in and that's a good thing
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that's the capital markets doing what
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they're supposed to do right which is
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money seeking an investable opportunity
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and we're on the proving edge of that
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and every time you've proved a market
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you have to move on to another market so
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Innovation is a necessity
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um so it's finding a business model that
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that enables you to you know prove out a
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market in increasingly short amount of
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time move on to the next one be
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incubating the third one at the same
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time and still make your margin uh
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because like any other Financial
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intermediary we live in our margin um
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and that's really challenging so that
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actually leads me to competition in your
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space so we've seen we're seeing this
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explosion of interest in Impact
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investing we're definitely seeing that
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at Wharton between students faculty
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alumni other outside stakeholders that
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look to Wharton um so how do you view
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competition in your space um especially
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considering what areas in the in the
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country and in this market that you play
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in yeah so most of it's good we want
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more competition because on the money
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raising side of our business we spend
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the vast majority of our time trying to
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explain to people in financial services
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what we are we are always is a square
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peg in a round hole so the more Square
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pegs there are out there the more you
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know will generally start to be accepted
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and this will start to be a movement and
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more mainstream unless you know this is
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this Niche little thing over here in the
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corner uh which by the Numbers it it
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still is um and then in terms of the
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investment area competition is always
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good right it's good for the borrowers
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or the in people who are raising Capital
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because it lowers their cost of capital
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there is sometimes a lot of distortion
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though in the market where you have a
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lot of subsidized Capital that can flood
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a market sometimes and that is not good
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because it will crowd out private
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Capital uh so there's like there's some
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nuances to that but generally speaking
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thinking about how vast the resources of
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the capital markets are the more
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competition the better because we've
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just got to keep growing the
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pie and what do you think you're seeing
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globally so we're seeing impact
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investing being a real Global movement
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um and you know what do are you focused
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only on the US or are you focused on
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other kind of Emerging Markets too yes
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so about half of our portfolios invested
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in Emerging Markets we only raise our
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money in the US uh that's how we're
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presently structured but we often will
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co-invest with International investors
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and funds uh from Sovereign development
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funds to private International
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foundations so I think one thing we're
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seeing is a lot more institutional
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Capital being mobilized particularly in
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the EU and in the UK um we're seeing a
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lot of interest in places like India to
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support impact investing uh it tends
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presently to be limited more in the
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equity markets um which makes a lot of
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sense partly because of the you know
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stage of development in Emerging Markets
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um and you often need good Equity
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markets to be functioning before you can
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have good debt markets function and also
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it's where you can take a lot more risk
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um and investors are willing to Bear
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more risk so I think right now you're
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seeing a surge certainly in the private
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Equity Arena uh less so in the fixed
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income space which is really where where
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we tend to specialize so we're often
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kind of the first or the you know the
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only investor uh in a leverage fund
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where there's a lot of equity investors
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and we're coming in with a little little
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piece of uh of debt in there um which is
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great because we get to learn a lot but
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um one of the biggest Trends is this
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collaboration idea which is that you
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need multiple kinds of capital you have
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to stack the capital um in order to meet
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the market needs that you're trying to
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get to and that usually includes Grant
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capital for technical assistance and
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capacity building because if that market
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if affordable educ private education in
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India were already investable chances
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are the banks would already be investing
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in it and so there's this capacity on
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the ground that really needs to be built
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while you get very creative with the
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sources of capital that you're using to
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really responsibly meet the needs on the
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ground and that's probably the biggest
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Trend we're seeing
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so thinking of those Capital stacks and
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you know the importance and the use of
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Grant
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Capital does that does that have
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implications for the long-term viability
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of a market how do you use Grant Capital
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effectively in in the capital stack it's
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a really really good question and it's
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really critical I think to the survival
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of the broader industry and there are
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good examples and bad examples but what
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I always remind myself is that for
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example the US government subsidized
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our coal industry and our rail industry
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for decades if not centuries and no one
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thinks of those as subsidized Industries
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right so everything you know a lot of
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the markets we think of today as uh
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Market Industries have been subsidized
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or continue to be subsidized in in
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various ways um so so the question of
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subsidies is a very complicated one but
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thinking kind of about the next level of
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granularity about Grant capital and
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where it's most useful um is there's a
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there's a couple of things that go into
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that I think one is leverage so
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understanding that for every dollar of
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grant money depending on how it's used
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it can either go straight into funding a
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program or straight into building a
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building or it can be leveraged five 10
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20 times if you're pairing it
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appropriately with private Capital as
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that risk piece as that first
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risk-taking piece and that's probably
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one of the most effective ways Grant
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Capital can be used and then I think on
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the other side it's it's essential in
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funding Innovation and r& in the
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industry what kinds of interventions
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really work to improve the quality of
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life for people that are living in
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poverty or that are moving out of
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poverty what sorts of Civic
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infrastructure what sorts of public
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goods and services are most important
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investors don't have the resources to
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invest in that kind of R&D and say okay
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this intervention Works in these
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scenarios and here's how we're going to
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replicate and scale them Capital will
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come to that call to action but
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philanthropy really and public services
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really have to fund it um and that's not
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unique to impact investing in in general
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I mean R&D in most Industries requires
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some some level of subsidy I think those
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are two areas where we really need
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philanthropy to be active what are the
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challenges um and correct me if I'm
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wrong what are the challenges you know
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if you're working a lot with retail
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investors to doing this type of work and
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fitting into that Capital stack with
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retail investors yes so we do have um
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kind of an extra barrier of pro burden
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of proof to demonstrate
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um in addition to all of the reporting
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both the financial reporting that you
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know all investors would require and the
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social impact reporting um which is
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another area I think philanthropic
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resources can play a much bigger role
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and and they are um and so you know we
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we can't ask our investors to take the
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kinds of risk that institutional
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investors will take that foundations
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will take um because people are
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investing their Savings in us and the
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state regulators are looking at that and
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saying hm you know what are these people
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doing with these people's savings um and
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so we have to be incredibly prudent
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fiduciaries we have to have a really
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strong balance sheet we have to repay
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everybody 100% And on time which we've
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always done in the past um and it's not
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you know it's not the kind of scenario
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where you can have a major misstep and
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go through restructuring and have
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everybody kind of be okay um there's no
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room for error when you're this small um
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and this niche in the retail investment
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Market we have to have perfect
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performance and that's a pretty high
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barrier when you're on the front line of
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a lot of these um you know experiments
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with society and capital markets so one
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thing that I think is interesting to
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note is is the number I can't it the
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number escapes me but of money that flow
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through remittances so people that have
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left their countries live in the US and
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still send money back home so a huge
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Market for retail in of of retail
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investors potentially are there products
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that you've developed that focus on that
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segment of the market yes in a in a
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certain way so we have developed a uh
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two diaspora engagement investment
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campaigns where we've created portfolios
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of Investments or Investments to be um
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in certain markets and in this case one
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of the markets is India and I'll use
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this as my example um so we're investing
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in various social Enterprises in India
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and we are engaging with and talking to
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the indian-american diaspora who we know
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is highly highly active in investing and
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giving um with you know a lot of very
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targeted um ideas about where they want
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to put the money into their home regions
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or countries uh to say hey here's one
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way that you can engage in investing for
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social benefit and social good and
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economic development in India alongside
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all of the other Suite of activities
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that you do so it's very complimentary
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to the person who is sending remittances
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who is investing in their you know
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family business back home who's buying
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land and plans to retire um back in
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India this is just part of the kind of
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The Suite of financial activities that
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someone can engage in and remittances
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really do give a very interesting um
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framework for how you engage people on
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this topic and one thing about
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remittances that is really challenging
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and interesting is that
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um most people don't consider that
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investment so the you know powers that
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be in the worlds of development and
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government look at remittances as
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investment they constitute a really
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substantial part of most um most of the
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economy they definitely operate as
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Investments right they fuel businesses
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they pay for school education etc etc
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they fuel cons consumption um but the
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person sending the remittance doesn't
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think of it as an investment and that is
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key because it means that that
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interaction of a remittance where
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someone thinks of it in their kind of
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their family bucket their household
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bucket it's not the same part of the
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brain and the pl part of planning that
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that person is using when they think
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about their Investment Portfolio so it's
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two separate conversations that are
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quite hard to map together even though
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functionally that money is doing the
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same thing on the other side sounds like
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how we've we've looked at I make my
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money on one side and give it away
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philanthropically on the other exactly
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it's that you know it's that distinction
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and it's really problematic and it's not
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unique to Diaspora communities um there
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was an interesting study about this uh a
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few years back that I think you know was
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culturally you know socially agnostic
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that said um people use this side of the
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brain for giving and this side of the
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brain for investing um but the brain as
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we know is very plastic and I think we
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can rewire that tendency and the feeling
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of rewards when you know you've aligned
00:17:27
your Investments and your financial
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security with the kind of social values
00:17:33
that you believe in and espouse in every
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other area of your life it's just an
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extension of being a conscious consumer
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if you have a bank account you're an
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investor that money is not just sitting
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in that bank account that bank is using
00:17:45
that money to invest in what they think
00:17:48
is investable so I really hope that you
00:17:50
agree with that because otherwise your
00:17:52
money is being used to invest in things
00:17:53
that you might not support and that pool
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of assets your investment assets as an
00:17:59
individual in the US is the large single
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largest resource in the country it
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outstrips public budgets it outstrips
00:18:05
philanthropic budgets so if we don't
00:18:07
move that money productively for society
00:18:11
whether it's here or you know
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internationally um we're never going to
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bring the right set of tools to the
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social problems that we try to fix
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coming back to the future of impact
00:18:21
investing and and your work at the
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Calbert Foundation are there do we have
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enough Talent if this is if this
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movement is to scale what are the
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leadership qualities for the future we
00:18:31
do not have enough
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talent and part of that is because a
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nent industry uh is really bad at
00:18:38
developing their bench uh so so there's
00:18:40
not a lot of kind of middle management
00:18:42
uh or you know MBA recruiting programs
00:18:45
where you have a leadership uh training
00:18:47
you know for two months in each
00:18:48
department no one really everyone's
00:18:50
running really lean and really fast so
00:18:53
it's highly entrepreneurial it's fun and
00:18:54
it changes fast but there's not ever
00:18:56
enough Talent um
00:18:59
so you know the multi-disciplinary
00:19:02
nature of impact investing cannot be
00:19:05
overstated a pure Finance is not enough
00:19:08
of a background pure development and
00:19:11
philanthropy is not sufficient
00:19:13
background um so so there's like this
00:19:16
merging of understanding you know how to
00:19:19
intervene at a social level how to
00:19:21
connect social interventions to fight
00:19:24
poverty or to improve the environment
00:19:26
with how the capital markets work work
00:19:28
and there's a incredible amount of
00:19:30
expertise in how you develop product and
00:19:32
how you tap into various distribution
00:19:34
networks that is really missing in the
00:19:36
impact investment Market um with also
00:19:40
the functions of running funds um so you
00:19:43
know Loan Servicing you know it um
00:19:47
things that are really basic you know
00:19:49
really you know treasury management you
00:19:51
know all the sorts of things that people
00:19:52
tend to relegate to oh that's what
00:19:54
people in Banks do um those are really
00:19:56
critical for the industry and so you
00:19:59
need these people who have who are
00:20:00
really excellent at those functions who
00:20:03
have a multidisciplinary exposure where
00:20:05
they've worked at a foundation and
00:20:06
they've worked at a bank or they've
00:20:08
worked for city government and they've
00:20:10
worked for a pension fund to really join
00:20:12
in on the impact investing movement and
00:20:14
to get it to get it to where it needs to
00:20:16
go well I'm just really excited
00:20:18
personally for the future and it sounds
00:20:20
like you are too thank you so much for
00:20:22
joining us um this has been Margo
00:20:23
kanaine with the Calbert foundation and
00:20:26
thank you again thank you so much for
00:20:27
having me Nick
00:20:39
[Music]
