All Things Impact.

private capital & the public good

All Things Impact for June 17: the "Innovative Finance Revolution"

Brian WalshComment

Hi friends,

Here are four links worth your time (plus job postings, items of note, and a calendar of upcoming events): 

1. Effective Philanthropy: Why don’t foundations share what they learn?
Marc Gunther writes in Nonprofit Chronicles about the re-launch of the Foundation Center’s IssueLab website, and the reluctance of foundations to share what they learn in the course of their work:

Pardon me for generalizing, but this reluctance to talk about failure is too frequently part of the culture of foundations and nonprofits. Partly that’s because foundations and nonprofits don’t do enough evaluations; they are hard to do, and they cost money, and donors are reluctant to divert money away from programs into research. I get that. But foundations have nothing to lose by sharing their insights…
 
Foundations and nonprofits spend tax-advantaged money to study the world’s most important problems. We can presume that they want to be better understand how to solve them. Why, then, wouldn’t they want to share what they are learning, in any way they can? As a newcomer to the social sector, I remain puzzled… About the only explanation that I can come up with for the reluctance to talk more widely about their results is that personal embarrassment that talking about failure might bring. I assume that people don’t get fired from foundations for making grants that don’t accomplish their aims, but perhaps I’m wrong about that?
 
Since its inception, Issue Lab has collected nearly 20,000 “resources” from about 5,500 publishing organizations. That sounds impressive, but Fitz told me that it is “barely scratching the surface.” To test out that proposition, I searched IssueLab for research on several topics that are interests of mine — clean cookstoves, cash transfers and animal welfare — and found a couple of reports of value, but not much.
 
But do we need Issue Lab when we have search engines such as Google, I wondered? Fitz explained that Google’s algorithms tend to drive users to the websites of well-established think tanks like the Urban Institute and Brookings. They produce valuable work but too often the lessor known but incredibly valuable evidence about programs operated by nonprofits winds up buried deep in search results." 


2. Impact Investing: the "Innovative Finance Revolution"
Georgia Levenson Keohane and Saadia Madsbjerg write in Foreign Affairs about the “innovative finance revolution", where private capital is being deployed towards the public good:

“In recent years, however, a new model has emerged, as collaborations among the private sector, nonprofit organizations, and governments have resulted in innovative new approaches to a variety of global chal­lenges, including public health, disaster response, and poverty reduction. Instead of merely reacting to crises and relying solely on traditional funding, financiers—working closely with governments and nongovern­mental organizations—are merging private capital markets with public systems in ways that promote the common good and make money for investors as well. By relying on financial tools such as pooled insurance and securitized debt, these efforts—which have come to be known as “innovative finance”—can unlock new resources and lead to cost-effective interventions. At the same time, such solutions generate profits and give investors an opportunity to diversify their holdings with financial products whose performance isn’t tied to that of the overall economy or financial markets.
 
Technological advances and creative thinking have led to a boom in innovative finance. To realize its full potential, however, solving public problems by leveraging private capital requires more attention from policymakers, who should consider a series of steps to encourage even more progress in this area.
 
A wide range of players have begun to embrace innovative finance, including treasury departments, multilateral development agencies, nonprofit financial firms, and traditional investment banks. In most cases, philanthropic foundations have stepped up with seed money. Government aid agencies have then put new concepts into practice by providing funds to create new financial vehicles.
 
The term “innovative finance” suggests complexity, but it’s less com­plicated than it sounds...
 
Innovative finance can help improve the international community’s response to some of the most costly aspects of such crises. Imagine, for example, how pay-for-success contracts or approaches similar to IFFIm’s could allow governments to raise funds quickly for the health-care, housing, and educational needs of refugees by securitizing future spending. Such proposals might once have seemed far-fetched; not any longer. With continued philanthropic support and sustained commitment from governments, innovative finance can put the power of private capital markets to work for the public good.


3. Responsible Investing: From “The Lean Startup” to the Long-Term Stock Exchange
The UK's Social Stock Exchange calls itself “the world’s first regulated exchange dedicated to businesses and investors seeking to achieve a positive social and environmental impact through their activities.” Bloomberg’s Matt Levinewrites somewhat skeptically about a separate new idea, the “Long Term Stock Exchange” being floated by “The Lean Startup” author Eric Ries:

“It's a little weird that corporate governance standards should be set by stock exchanges. A stock exchange is a place -- or a computer -- for people to get together and trade stocks. A good stock exchange has fast computers and good rules for trading stocks. Separately, a good stock exchange might trade only good stocks, but in modern markets there is no real conceptual connection between those things. I could just write down a List of Good Stocks, and decide only to buy those stocks, and not care which exchange I buy them on.
 
But in practice a lot of governance standards -- about independent directors and shareholder vote requirements and so forth -- are set by exchanges as a condition for listing. And here is the story of a new proposed exchange that will have different governance standards:

If all goes according to plan, the LTSE could be the stock exchange that fixes what Ries sees as the plague of today's public markets: short-term thinking that squashes rational economic decisions. It's the same stigma that's driving more of Silicon Valley's multi-billion-dollar unicorn startups to say they're not even thinking of an IPO. "Everyone's being told, 'Don't go public,'" Ries said. "The most common conventional wisdom now is that going public will mean the end of your ability to innovate."

…The things that will make his exchange long-term-oriented and innovative are, like, different executive compensation, and more voting rights for investors who've held shares for a longer time. This contrasts with the efforts by, for instance, Facebook to combat short-termism by giving public shareholders (essentially) no voting rights. "The LTSE also wants to nudge companies and investors to share more information, such as detail on R&D spending," which contrasts with some of the calls to fight short-termism by reducing public disclosure.
 
It is a little weird that short-termism is a problem with so many opposite solutions, but then, I am a bit skeptical that it is actually a problem. In any case, I am a big fan of companies experimenting with the formulas of governance and share ownership, so I am happy that Ries is doing his thing. I don't really know why it needs to be an exchange -- companies could, for the most part, just do these things on their own -- but I guess every governance innovation needs some sort of marketing angle. “


4. Wildcard Topic: Radical Changes Are on the Way for Investment Banks
John Carney reports in the Wall Street Journal about the future of investment banking - which will be more reliant on technology and less reliant on workers:

Trading will migrate to hedge funds. Jobs in the back office and stock-research departments will be done by machines. The heavy lifting of funding and capital allocation will shift from banks to giant asset managers, pension funds and sovereign-wealth funds.

Pressure on margins will persist, forcing investment banks to unbundle offerings and start charging for services like research and pricing data that they used to give away to win business.

In short, investment banks will be smaller, more specialized and home to technologists instead of traders. Instead of mastering the universe, they will seek to dominate smaller domains...

The center of power in finance has shifted to the “buy side”—those that purchase services—and investment banks will have to rethink their relationships with the asset managers, private-equity funds, pension funds, sovereign-wealth funds and hedge funds that make up that world.

As assets under management rise toward $100 trillion by 2020, according to the Boston Consulting Group’s forecast, the buy side will replace banks as the source of funding for deals and underwriting.
 

5. Job Postings


6. Items of Note

  • After 12 years, Rockefeller Foundation president Judith Rodin announces she's stepping down.
  • The MacArthur Foundation has launched an ambitious open grant competition 100&Change, a $100 million prized for a nonprofit - or even for profit - to submit a compelling idea to solve a major issue. 
  • Echoing Green has developed the Seed Impact Investment Template Note, or “SeedIIT,” to help emerging social entrepreneurs running for-profit businesses. 


7. Upcoming Events

June 22-23 Social Impact Exchange - Conference on Scaling Impact (NYC) Effective Philanthropy
June 23-July 2  Aspen Ideas Festival (Aspen, CO) Effective Philanthropy
June 29-30 Future Finance & Social Innovation (Toronto) Impact & Responsible Investing
Sept 6-8  PRI in Person (Singapore) Responsible Investing
Sept 13-16  SOCAP (SF) Impact Investing
Sept 26-28 Exponent Philanthropy Conference (Chicago) Effective Philanthropy
Sept 26-28 ANDE Conference (Lessburg, Virginia) Impact Investing
Oct 9-14  Opportunity Collaboration  (Cancun Yucatan) Impact Investing
Oct 18  High Water Women (NYC) Impact Investing
Oct 18-20 Conscious Capitalism CEO Summit (Austin, TX) Responsible Investing
Nov 3-5  Net Impact (Philadelphia) Various
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing


That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like this gif of Queen Elizabeth instructing her grandson to standup at a public event and this collection of golden retriever gifs - it's been a tough week and we can use all the "awww's" we can get).  

Until next time, thanks for reading!
Brian

Brian Walsh
Head of Impact at Liquidnet. Full Bio