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