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• Advisors Forum 2018: Behind Closed Doors: What Investors and Managers Really Think About Deal Flow

June 25 2018
June 25 2018

Confluence Philanthropy’s first annual Advisors Forum brought together 100 attendees at Thomson Reuters in Times Square in June 2018, starting with an afternoon discussion for members only. Opening the event, Confluence CEO, Dana Lanza, shared, “After nearly a decade of supporting foundations and families in aligning mission and values with their financial resources, we have come to realize that Advisors play a critical role in unlocking this capital.  The Advisors Forum is a courageous first effort to connect with you in a new way. If we all work together we can transform the ways in which capital markets move. For me personally, my hope for a new economy is right here, in this room today.

Prior to the event, planning committee members* were asked to select what they saw as the greatest current challenge to the industry. Collectively, they voiced that perceived barriers to deal flow constrain capital. Investors often blame their inability to deploy capital on a lack of investable opportunities, but from the viewpoints of planning committee members there are other factors at play; CIO compensation, miscommunication, misunderstanding or mistrust between investment advisors and their clients were some, to name a few.

The Committee gathered the membership in attendance to address barriers to deal flow – both perceived and real – entitling the session Behind Closed Doors: What Investors and Managers Really Think About Deal Flow. The opening discussion was led by Sandy Urie, Chair Emeritus of Cambridge Associates, and included Shuaib Siddiqui, Director of Impact Investing at the Surdna Foundation; Temple Fennell, Board Member, Keller Enterprises; Jennifer Pryce, CEO, Calvert Impact Capital; and Gil Crawford, CEO, MicroVest

The panelists’ objective was to clarify the dissonance between investors and their managers about capital constraints and to hear from both sides.

Given the differing approaches among the speakers, it became clear that investment barriers and opportunities vary based on each investor’s orientation. The group agreed that deal flow is not an issue, when the investment strategy employs flexibility, expertise, commitment, and clarity of purpose.

Representing the Surdna Foundation, Shuaib Siddiqui considers risk to be as important as return when evaluating opportunities. Between its $100 million impact investing carve out and its $18 million PRI fund, the foundation can pursue market rate returns while taking uncompensated risk for deals that have a greater social or environmental return potential. Shuaib and his team are empowered to flexibly deploy capital across asset classes and return profiles; sourcing viable deals has not been their challenge. More difficult is the task of narrowing down their options and prioritizing certain managers and specific opportunities over others.

As a board member of Keller Enterprises, a family office rooted in the oil and gas industry, Temple Fennell does not think of himself as an “impact investor.” Instead, he sees himself as an innovator, sourcing or creating  investments in climate solutions that hedge risk at Keller. With Temple’s  expertise and leadership, the family office focuses on the top five externalities that affect their business, and generates alpha by identifying mispriced risk in the marketplace. This means that their investment approach shifts based on large market fluctuations. As an example, wind energy was initially very profitable but as more investors came in, the sector became far less attractive. As a result, sustainable agriculture has become a new area of focus due to a dearth of capital in that sector. When it comes to sourcing deals, Temple and his team are ambitious about developing more product. They recently started a clean energy venture capital fund and purchased a farm in the South Eastern United States to pilot new organic farming methods.

Calvert Impact Capital invests private debt in communities that traditional markets typically avoid. Calvert pools capital by offering fixed income notes to investors while providing loans to roughly a hundred mission-driven enterprises worldwide. Jennifer Pryce, CEO, explained that it has taken deep organizational commitment to achieve their goals over 20 years. As a manager specializing in private debt, Calvert is more focused on scale than innovation. Now with over $500 million in this product, Calvert Notes have reached financial profitability.

Gil Crawford, CEO at MicroVest, has struggled with other issues. After a string of meetings in Silicon Valley several years ago, Gil worried that he was boring angel investors who were typically motivated by the traditional high-risk, high-reward venture model. He was challenged with making a compelling case to help investors understand the opportunity for investing in financial institutions that serve micro, small and medium size businesses for high impact alongside a monetary return. MicroVest is on a mission to convince investors that the type of debt capital they provide is not only needed in the social enterprise sector, but that it can also be an attractive opportunity. They argue that it is often the business itself, and not the financing vehicle, that matters most.

In conclusion, Sandy probed panelists about their frustrations. All four agreed on some of the challenges facing the industry:

  • Impact Investors may be overly artisanal in their focus. This can preclude their commitment to capital deployment and investors can accelerate the industry by broadening their envisioned outcomes. At scale, investing is a blunt instrument, not a fine grantmaking tool.

  • Investors should be clear and directive about their unique investment interests, especially if they are, indeed, unique. This would save time and money for investors and managers alike, and reduce frustration on all sides.

  • Investors may not understand the time, complexity, and expertise that goes into creating investable opportunities – especially with strong environmental or social outcomes. Some impact opportunities will always be philanthropic in nature.

  • Market and financing barriers are real. Some worthwhile ideas are simply not investable. When they are, it will take time, commitment, and risk-capital to change market conditions. Is philanthropy truly ready to take the lead?

  • Long-term institutional investors have very short tenured investment teams (typically under 5 years) and the compensation scale is based on an annual performance cycle. As a result, these decision-makers may not be properly incentivized to prioritize social and environmental outcomes on par with financial return. To truly scale the industry, CIOs, investment advisors, and other decision-makers must be compensated based on total performance.

Sandy closed by noting that despite the hurdles, the industry is growing. Among Cambridge’s endowment and foundation clients, a recent survey showed that 61% of them plan to increase their impact-oriented allocation over the next five years. By working together with a focus on communication and strategic thinking, we can do this. There is still a long way to go, but we have already made great progress.

Read about the next Advisors Forum session featuring large group open discussion led by Geoffrey Eisenberg, Principal, The Ecosystem Integrity Fund, and Liz Michaels, Chief of Staff and Director of ESG/SRI, Aperio Group here:

Facilitated Discussion: Solutions in Deal Flow

To find out how you can join the Advisors Program, or to suggest future content, contact Advisor Senior Program Manager, Hannah Erickson.

Advisor Forum Planning Committee*

  • Geeta Aiyer, President, Boston Common Asset Management

  • Geoff Eisenberg, Principal, Ecosystem Integrity Fund

  • Peter Knight, Retired Partner, Generation Investment Management

  • Dana Lanza, CEO, Confluence Philanthropy

  • Liz Michaels, Chief of Staff and Director of ESG/SRI, Aperio Group

  • Sandy Urie, Chairman Emeritus, Cambridge Associates

 


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