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i'm katherine klein i'm the vice dean
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for social impact at Wharton and our
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guest today is Bobby Turner a leading
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light in impact investing the principal
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and CEO of Turner impact capital and an
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evolved capitalist welcome to our show
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Bob solving evolving always room for
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more evolvement that's good that's good
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um so let's start let's turn the clock
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back a little bit of um 25 years ago you
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were a co founding partner chairman CEO
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of Canyon capital Realty Advisors you
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stayed with a firm for many many years
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but about two years ago founded Turner
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impact capital so tell us what's
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different other than assets under
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management
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well definitely assets under management
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what's different is the opportunity to
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spend 100% of my time and energies
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focused on something that I'm
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passionately not passionate but
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fanatical about as I tell people for the
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vast majority of my career I was both a
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capitalist and I was a philanthropist
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and I struggled a both as a capitalist I
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was again a partner in one of the
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world's largest hedge funds for 25 years
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of my life I created great wealth but
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the sense of accomplishment wasn't
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paralleled the amount of wealth that I
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had created so I really I struggled at
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making my change meaningful as a
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philanthropist I struggled at making
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meaningful change
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I had given millions of dollars away of
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my time and my energy and my money only
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really to put band-aids on treating some
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of society's most daunting challenges I
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realized in many instances I was I was I
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was treating not curing and I was
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actually creating and funding a legacy
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of dependency it was only about 15 years
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ago with the help of my wife that I
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actually evolved I evolved from a
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capitalists whose sole metric of success
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was just making money to one that could
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also superimpose the impact on the
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larger stakeholder community at large to
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do what both good and do both well at
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the same time so so what changed what
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was your whites influence you know my
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wife is a very very good barometer on
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everything real and authentic you know
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many years ago she a she looked around
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the the community and said she wanted to
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purge a number of relationships we had
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and then I asked why and she said she
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didn't think that these families were
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actually rooting for our success
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and I think it takes that kind of wisdom
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that my wife has to help me oftentimes
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put my trajectory back on the right
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course it's not always about the
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destination in life it's also about the
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journey and my wife's a very good
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journey woman I'm a good destination guy
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but she balances me with the importance
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of the journey interesting so she got
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you thinking about more about
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philanthropy and particularly around
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impact investing well we were always
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interested in philanthropy she got me
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she recognized my frustration with
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philanthropy and it was her suggestion
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you know if you could take the the
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acumen and the prowess that you had as a
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as a capital investor and applied that
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you're a profit-driven admission to the
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purpose driven mission you probably
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could scale and create sustainable
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solutions to the issues that are so near
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and dear to you yeah and so you had as I
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understand it you had been a
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philanthropist giving to to grow charter
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schools yeah and then the light bulb
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went off and you thought I can invest in
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charter school facilities and I will
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have substantially greater impact
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through an investment practice yeah well
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you know most people you know tend to
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bask in their glorious I tend to dwell
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on my failures and you know over a
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seven-year period as a not-for-profit I
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was very actively involved in
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organization where with the help of Bill
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and Melinda Gates in Eli Broad we
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actually built 38 public charter schools
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and probably some of the most
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economically challenged neighborhoods of
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Los Angeles thirty-eight public charter
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schools thirty-five charter schools
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sounds like big impact 15,000 school
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seats and candidly the problem was is
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for each of those school seats there was
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three kids in the waitlist nearly 45,000
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kids were in that wait listen and I
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concluded you know once again that what
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I was doing with the Pacific charter
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school Development Corporation the
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not-for-profit is we were treating we
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were trying to address it we were being
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reactive and the reality was and I
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recognized years ago if you want to
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treat philanthropy and government are
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fine but if you want to cure you have to
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harness market forces to create a
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sustainable solution by the way
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Katherine that means making a profit and
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there's nothing wrong the fact is is
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that you can drive better risk adjusted
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returns by being purposeful because the
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realities are as we're not speculating
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on demand we're just fulfilling an
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existing demand where the traditional
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investor in the space has been the
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government or philanthropy so you you
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partnered with Andre Agassi did create
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the the Turner Agassi Charter Schools
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fund tell us a little bit about when the
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light bulb went off
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you know and the stepping stones - you
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know what there's a better way than
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philanthropy so for Andre it was
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interesting I made a cold call to Andre
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I like to think of it as a warm call but
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I had read his book and I realized that
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he and I shared the same passion and
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frustration for public charter schools
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he is a philanthropist had built his own
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K through 12 public charter school and
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again one of the most underserved
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economically challenged neighborhoods of
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Las Vegas Andre was an eighth grade
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dropout he always likes to say that his
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two most difficult years of high school
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were eighth grade but he felt that his
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responsible was to give back to those
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who well didn't have the athletic
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capabilities they had the capabilities
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to succeed if they had the opportunity
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to complete school so by the time I
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admit Andre he had built his K through
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12 public charter school called the
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Andre Agassi college preparatory academy
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I hated to graduating classes a hundred
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percent of those kids had graduated and
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gone on to college his frustration was
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while he was educating a thousand kids
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in a school there was three thousand
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kids on the wait list so I called Andre
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and I floated him what he thought was a
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very novel idea let's take our mission
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driven organization let's make it for a
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profit so that we can scale it and
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create a sustainable solution his
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initial response was great skepticism he
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thought it would be hypocritical of him
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and I say for the landed us to make
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money off of his philanthropy but it was
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very easy to impress upon him the very
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simple fact that over the prior 15 years
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Andre actually raised a hundred and
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seventy five million dollars in
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philanthropy to build and operate his K
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through 12 public charter school what he
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had the day that I sat with him to show
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for that hundred seventy-five million
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dollars was one school a thousand kids
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in his school and no money in the bank
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and when I said to Andre if we were to
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take the same 175 million dollars and
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use my business model in 1/5 the time we
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could have built 50 schools 25,000
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schools he's returned the capital to our
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investors with a return there and done
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it all over again I think that was the
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lightning rod that made Andre think he
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could continue treating the problem of
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the band-aid or basically evolve from
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philanthropists to social impact
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investor and join the interesting your
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turning point so when you turned from
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and the the the thinking that brought
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you from I'm getting frustrated with
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this philanthropy thing and and the the
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philanthropic approach to building
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charter schools is not gonna be as
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powerful as this for-profit investment
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how did how did that transition happen
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even before you called andre agassi
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i think at some point in my career my
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daughter and I had a conversation very
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interesting when when she asked me daddy
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would he want your epithets read I love
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that we're hearing about this women the
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important women in your life you know
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absolutely you know we men we were
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fundamentally insecure and nothing's
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stronger to make a man successful than a
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powerful and an intelligent woman she
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asked me what I wanted my epitaph read
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and I respond to her
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quite honestly sweetie daddy went to the
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Wharton School I have no idea what the
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word epitaph is so when she explained to
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me it's what did I want my gravestone to
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read I thought it was a fairly morbid
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question but I indulged her um and I
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said well you know when I graduated the
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Wharton School back in 84 with this
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black belt and how to create wealth it
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was very clear to me what I wanted to
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read mm-hmm daddy wanted to have the
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most change in his pocket when he died
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well you know 15 20 years later in my
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career I had created wealth I'd realized
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that I wasn't happy from the wealth I
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had also been a philanthropist and
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realized that I wasn't happy being a
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philanthropist um I really said what I
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really wanted my my epitaph to read was
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not that daddy had the most change in
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his pocket but rather daddy made the
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most change in the world and I realized
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that I couldn't do that as a
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philanthropist I had enough money to
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retire at that point in my life but I
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didn't want to retire to become a
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philanthropist because as a
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philanthropist what I probably would
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have done is just continued to treat
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problems and create and sister and
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support a legacy of dependency so
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probably about 15 years ago in my career
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I realized that if I really wanted to be
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happy as a human being and being
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balanced with my desire to be profitable
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and purposeful I had to be I note I
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don't call myself a pioneer but I was
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one of the first who had the courage to
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step back from making money for the sake
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of making money I like to joke that for
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many years as an investor I was making
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money off of other people's misfortunes
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at social impact I get to make money off
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of tackling other people's misfortunes
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and that just sits better with me as a
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human being yeah so you used your
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expertise your expertise in real estate
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development to put forward on a
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particular brand of impact investing and
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and you've had great success with the
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Turner Agassiz charter schools fund you
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have a new fund that you're raising
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money for now but we've raised a second
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fund its raises the Turner multi found
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the impact for them which is almost a
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sister fund yeah so tell us about this
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because now you're moving to the
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multifamily impact fund well one has to
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recognize
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the challenges we have in society are
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daunting be it health care beauty
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education be housing but also recognize
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that they're interdependent you know as
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an educator having built thirty four
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thousand school seats
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I recognize that we could do great
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things for a child's life between the
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hours of 8:00 and 5:00 but these kids
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went home to an unsafe own nurturing
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home environment everything we had
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accomplished had gone out the window so
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recognizing that you can't tackle one
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without catalyzing the you know tackle
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tackling all three issues of health care
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preventative health care not a huge
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health care but preventive health care
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access to great quality education and
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affordable workforce housing then we
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really weren't going to reinvent society
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as I said you know number of months ago
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I was at a dinner where I was sitting
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with Larry Summers Richard Branson
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Condoleezza Rice and chuck hagel and the
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conversation quickly went a very erudite
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crowd you know what were the what was
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the biggest challenge facing society and
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everyone concluded very quickly that it
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was the disparity in wealth that when 1%
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of society controls 99 percent of the
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wealth that's when you undermine the
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fabric of a healthy community um
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I actually don't believe that I refute
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that in fact the history in the backbone
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of America has been built on the
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disparity of wealth now it may be more
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extreme today than it's been in the past
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but we laugh today what we have a
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disparity in his hope the reality is the
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99% which by the way I grew up as the
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99% we always believed in the
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feasibility of the American Dream with
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hard work with education and a little
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luck if you could become the 1% then you
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were willing to play nicely in the
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sandbox when you take away the hope when
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you growing up in East Baltimore a
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single parent with two children and you
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know you don't work one job you work two
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or three jobs at minimum wage you spend
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50% of your income on housing at the
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expense of food security and health
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security your kids are relegated to a
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public school district where the
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probably them graduating high schools
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below 50% graduating college less than
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2% you have no hope so
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so the multiply family impact fund
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building building workforce housing
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how's this gonna affect people's lives
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so it's a great question number one is
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we're not building workforce housing we
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can't build workforce housing that's
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part of my frustration in life but just
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because I can't build doesn't mean I
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can't preserve and enrich and improve we
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have 43 million renter households in
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America 25% over 10 million families
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spent over 50% of their income on rent
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and again that comes to the expense of
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food security health care security
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requirements
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dirty and it's untenable it's almost
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it's it's almost criminal to realize
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that but you have this huge mismatch in
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between supply and demand you've got ten
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plus million families that can't afford
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rent you've got another four million
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families that'll come into the
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marketplace of the next seven years
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there will be low and moderate and
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families so you have an existing demand
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that a man is growing no one's building
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new workforce housing because
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economically you cannot build affordable
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workforce housing and drive or market
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rate returns and the worst thing the
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most criminal aspect of the housing
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market is the existing stock of
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workforce housing current market rate
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housing that's affordable or even
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subsidized housing it comes off its
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compliance period when it comes on the
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market it disappears it's getting sold
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to more opportunistic investors who have
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a very simple business model buy and
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improve to get a return on capital by
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increasing rents that comes the very
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expense of the very constituencies who
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were trying to preserve an enriched for
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so they're putting in granite
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countertops redoing those Caesarstone
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cabinet tops sub-zero refrigerators
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beautiful bathroom bathrooms and the way
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they get a return on capital is to
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increase rents displacing this very
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consumer I've again people that make too
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much money to afford subsidized housing
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to make too little money for luxury
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housing or homeownership because we have
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a different business model no it's not
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around it's not around granite
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countertops describe them how this model
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works our business model is similar to a
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more opportune fund in the following
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sense I can afford to pay the exact same
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purchase price but therein lies where we
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diverge the traditional opportunistic
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investor will buy improve and drive out
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the consumer what we do is we buy in and
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rich that we can drive the same
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profitability not by driving rents but
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rather by reducing expenses by
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understanding the stakeholders having
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been in the urban communities now for
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over 25 years in partnerships with Andre
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partnerships with Eva Longoria and Magic
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Johnson I understand the three most
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important issues and challenges of these
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families have that's access to great
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education
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it's access to great preventative health
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care and a safe secure nurturing home
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environment if we could create a pride
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and render ship by enriching these
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communities with those three services at
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no cost you'd actually change the
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trajectory of your revenue stream we
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could actually drive profitability not
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by increasing rents but by reducing
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expenses so what are the expenses that
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are reduced for you as a developer if
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you do those things that will
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about how you do them but how does it
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how does this again as an owner of
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workforce housing one would recognize
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the biggest cost of owning and operating
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workforce housing is vacancy there's no
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pride in render ship no one comes home
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after working there two or three
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minimum-wage jobs to their tenement
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style home and say that I really love
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living here so therefore there is no
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pride there is no affiliation
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there's no no loyalty to your landlord
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therefore what you see is every 24
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months in the workforce housing you see
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a hundred percent vacancy if you could
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enrich the community by providing free
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services pre-health free health care
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free education and tutoring a free law
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enforcement you could actually change
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the relationship that you have with that
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tenant and if they were to staying
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longer without paying more rent just the
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fact they stay longer you can drive
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profitability profit margins by 10 to 20
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percent by eliminating the vacancy in
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turnover cost that's associated with
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rapid turnover we do that by partnering
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with our schools
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we'll build a great school in a
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neighborhood where there's affordable
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housing what we'll do is we'll subsidize
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housing for teachers in return for free
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housing which is great for the schools
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and the teachers the currency that the
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teachers will pay us is every school
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night of every school day we have some
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common area that we turn into a
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mentoring lounge that one of the five
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teachers for whom we've subsidized
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housing one of those teachers is staff
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rate is staffing that mentoring around
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for the benefit of our children so while
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our parents may be spending too much in
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rent already they could ill afford a
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tutor but yet by living in the Turner
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moth I found the impact fund property
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they get free tutoring we do that with
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health care we do that with law
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enforcement as well so you've bought two
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properties when in florida one property
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so far one in Prince George's County
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Maryland and one in Lauderdale Lakes
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Florida or in contacted by a third in
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Austin Texas right now so tell us about
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how you make the decision on where to
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locate what what made those two
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properties particularly good places to
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start so we like to focus on markets
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that are defined by the four DS of urban
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revitalization this goes for schools
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this goes for health care and just for
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housing number one it's got to be a
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densely populated community it's got to
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be a diversely popular community cuz
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that's where the mismatch is um there's
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got to be demand we're not interested in
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building charter schools and a
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high-performing public school district
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we're not interested in preserving
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affordable housing where there's no need
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for it so again density diversity and
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demand and also disruptive we're not
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investing in marketplaces where we can
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only invest a million dollars or ten
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million dollars we want to scale where
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we're building 10 schools we're buying
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5,000 units of affordable housing so
00:15:36
it's sustainable and it's scalable and
00:15:38
more importantly the holistic approach
00:15:39
so we can lift the and write the listing
00:15:41
ship for tens and tens of thousands of
00:15:43
families that can't lead on't have great
00:15:45
options so tell us what the success
00:15:48
indicators are that you'll be looking
00:15:50
for beyond the financial indicators but
00:15:51
the social indicators that tell you that
00:15:53
this model is working well first and
00:15:55
foremost I have to focus primarily on my
00:15:57
financial indicators because again this
00:16:00
is not you know social impact how I
00:16:02
define it is not by what it is but
00:16:03
rather by what it's not social impact is
00:16:05
not philanthropy it's not government and
00:16:08
is not a business model that believes
00:16:10
one should sacrifice yields in return
00:16:12
for a social metric for me to raise
00:16:13
money to truly scale the impact I want
00:16:15
to have I've got to generate consistent
00:16:17
risk adjusted returns without
00:16:19
sacrificing yields so number one every
00:16:21
day I go to the battle line making sure
00:16:23
I'm making money for my investors number
00:16:25
two is I'm having an impact a meaningful
00:16:28
impact on on the communities in which
00:16:29
I'm investing and in many instances it's
00:16:31
easy to define obviously if you're
00:16:33
investing in a marketplace where the
00:16:35
school districts are testing it well
00:16:36
below state levels we're only one third
00:16:38
of the kids are graduating high school
00:16:40
proficient in math and science or only
00:16:42
50% of the kids are even graduating high
00:16:43
school by bringing into that community a
00:16:45
high-performing established both
00:16:47
academic and financially performing and
00:16:50
and track record school we know that our
00:16:52
impact is the number of school seats
00:16:54
that we build because the number of
00:16:56
school seats that we build we filled
00:16:57
with a child and that many kids were
00:16:59
changing the trajectory for their lives
00:17:00
when you build or not when we build but
00:17:02
when we buy and preserve an enriched
00:17:04
workforce housing and the kids that were
00:17:05
teaching during a day in our in our
00:17:07
schools as they go home to these
00:17:08
communities and they get better sleep
00:17:10
it's a safer environment we know that
00:17:11
we're complementing and creating the
00:17:13
intact in the whole solution during the
00:17:16
day live work and play
00:17:17
also by extending the duration of
00:17:20
tenancy when we see that by enriching
00:17:22
the communities with health care with
00:17:23
education I'm with security when we see
00:17:26
that the average duration of a lease
00:17:27
goes from 24 months to 36 months we know
00:17:30
for a fact that we've proven when we've
00:17:31
seen incidences the number of incidences
00:17:33
transgressions 9-1-1 calls when you see
00:17:37
them drop from you know 75 to 80
00:17:39
month down to 75 a year that's when you
00:17:42
know you're having an impact on the
00:17:44
community and the culture of the
00:17:45
community where again you're enriching
00:17:47
and providing hope and Riaan stilling
00:17:50
hope into the community so you've talked
00:17:52
about the risks as one gets into this
00:17:54
space of arrogance and skepticism
00:17:57
arrogance on the part of the investors
00:17:59
who think they know the solution
00:18:01
skepticism I'm part of the community
00:18:02
have you avoided that in when it goes to
00:18:06
work when it comes to workforce housing
00:18:07
so a great question I like to say that
00:18:08
it's you know the biggest risk of being
00:18:11
successful social impact is not
00:18:13
recognizing the huge gap between
00:18:14
arrogance and distrust arrogance by
00:18:17
shareholders the money who believe
00:18:18
because we have the money we know what's
00:18:20
right for the community and distress
00:18:22
from the stakeholders who live and
00:18:23
breathe these problems every day who
00:18:24
assume were there just to make money the
00:18:26
only way to truly conquer that and
00:18:28
bridge that gap is number one by making
00:18:30
sure your shareholders are also
00:18:31
stakeholders between you look at the
00:18:33
company we're building not only we are
00:18:35
100 percent fanatical about what we're
00:18:37
doing we're also 70 percent diverse and
00:18:39
when I say diverse is not only gender
00:18:41
and ethnicity and religion is also
00:18:42
vacation it's when our school fund we
00:18:44
have recovering Teach for America
00:18:45
professors we have recovering public
00:18:47
school superintendents so we are of the
00:18:49
committee we understand the risks and
00:18:51
when we sit across the table from those
00:18:53
stakeholders they recognize that the
00:18:54
shareholders are also the stakeholders I
00:18:56
also can help bridge the gap by partner
00:18:58
with someone like an Andre Agassi or an
00:19:00
even Longoria who are ambassadors a
00:19:01
great well that can raise the awareness
00:19:03
they are truly philanthropists at heart
00:19:05
and by having their Good Housekeeping
00:19:07
Seal of Approval that can helps you know
00:19:09
mitigate the concern or the distrust
00:19:11
from the community because Eva and Andre
00:19:13
would never partner with a for-profit
00:19:15
capital provider who's so Mexican
00:19:17
success was a financial return it has to
00:19:20
be and we're held accountable for the
00:19:22
societal driven return as well so you've
00:19:24
been extremely successful on this
00:19:26
journey in finding the social problem
00:19:29
and the for-profit solution that go very
00:19:31
very effectively hand-in-hand and with a
00:19:33
focus on real estate giving your own
00:19:35
expertise as you look out in the world
00:19:38
at the you know incredible number of
00:19:40
social issues we face in this country
00:19:41
are there other social issues where you
00:19:43
are looking at them and saying beyond
00:19:45
Health Care's because I know you're
00:19:46
thinking about health care facilities
00:19:47
and preventive health care facilities or
00:19:49
there are other issues in the
00:19:51
world that you look at in your where
00:19:53
you're saying I think there's a
00:19:54
for-profit solution here whether for you
00:19:56
or for another person it's a great
00:19:58
question and any note for profit you
00:20:00
know one can drive profits in two ways
00:20:02
one can drive profits by by increasing
00:20:04
revenues one can also drive profits by
00:20:06
reducing expenses what's interesting to
00:20:08
me is the opportunity to figure out how
00:20:11
we can tackle some of the most daunting
00:20:12
challenges they don't have revenue
00:20:13
streams so there's no way to increase
00:20:15
revenues or profits but if we could
00:20:17
reduce expenses society as a tax as a
00:20:20
tax payer I'm always very concerned
00:20:22
about the government's lack of
00:20:24
accountability on the programs that they
00:20:26
have issues like teenage pregnancy
00:20:28
childhood obesity recidivism where
00:20:30
there's no necessarily a revenue stream
00:20:32
but we all know that if we invest the
00:20:33
capital to keep kids out of prison we
00:20:36
spend three times as much to incarcerate
00:20:37
than we do to educate as a taxpayer I
00:20:39
want to reward any organization that's
00:20:41
keeping kids from falling out of prison
00:20:43
back into prison we also know that most
00:20:46
of these organizations spends an
00:20:47
extraordinary amount of the time raising
00:20:49
capital every year there's no defined
00:20:51
revenue stream philanthropy is not
00:20:53
reliable it's not sustainable and
00:20:54
depending upon the socio-economic or the
00:20:57
economic variables it may be difficult
00:20:59
to raise money for any number one of
00:21:01
these mission driven organizations I'd
00:21:03
like to see the social impact bond
00:21:05
initiative I'd like to see it flourish
00:21:07
but right now a lot of the challenges in
00:21:09
that space is those organizations or
00:21:11
those ideas are being run by mission
00:21:13
driven organizations and while their
00:21:14
heart and their passion is actually
00:21:16
spot-on to addressing the issue they've
00:21:18
got to recognize that the only way to
00:21:20
scale sustainable solutions is also be
00:21:22
held accountable to the shareholders and
00:21:24
that means making money so until such
00:21:26
time as we are going to flourish or
00:21:28
populate the social impact bond market
00:21:30
with those who are recovering
00:21:31
capitalists as opposed to recovering
00:21:33
mission driven organizations I think
00:21:35
we're going to find some some problems
00:21:37
in the space either in recidivism and or
00:21:39
you know preschool education I think
00:21:42
we're getting there but I think that
00:21:44
people have got to recognize that you've
00:21:45
got to bridge the gap between profits
00:21:47
and purpose to truly drive the the best
00:21:49
and most superior risk-adjusted returns
00:21:50
okay so there's a final question let's
00:21:52
take it back to your company it turned
00:21:54
our impact capital what's it like to
00:21:56
work there what's the culture like it's
00:21:57
awesome
00:21:58
surrounded by again a group of people
00:22:01
that are 70% diverse so I
00:22:04
learn everyday but most importantly
00:22:05
we're a hundred and seventy percent
00:22:06
diverse means they're not white guys it
00:22:09
means they're not guys it means they're
00:22:11
not Americans it means they're not one
00:22:13
religion not one gender not one sexual
00:22:17
orientation not one of everything so
00:22:19
that when we sit around a table we
00:22:21
understand the nuances of every
00:22:23
stakeholder in America so I learn every
00:22:26
day but more importantly I'm surrounded
00:22:27
by a bunch of people who have the
00:22:29
courage that reality is as most people
00:22:31
dream while they're asleep it's easy for
00:22:33
people to dream others sleep whether to
00:22:35
sleep it's those that have the courage
00:22:37
to dream while they're awake that will
00:22:38
change the world and we have populated
00:22:41
turn our impact with a group of people
00:22:42
recovering professionals from all
00:22:43
aspects of life who have a shared
00:22:45
courage to dream while they're awake and
00:22:47
not take no for an answer
00:22:49
so I don't go to work any longer I go to
00:22:51
play every day of my life thank you so
00:22:53
much for being with us thanks for having
00:22:54
me
00:23:11
you
