Thursday, February 28, 2013

Thinking Impact, Philanthropically

By Elizabeth West, Program Manager, FasterCures

Impact investing (also known in some circles as mission investing) is a blanket term used to describe a variety of investment practices similar in their intent to generate measurable social and environmental impact alongside a financial return. In 2012 the practice of impact investing blew up, and it seems like this trend is only going to get bigger. As FasterCures’ Philanthropy Advisory Service is committed to helping those investing in the life sciences make the most informed decisions possible, we could not pass up the opportunity to learn about this new trend (permanent fixture?) in philanthropy at two recent conferences.
Imagination, Innovation and Impact in Philanthropy

The first was the University of Southern California’s Annual Leadership Forum – Philanthropy: Imagination, Innovation, and Impact. The event brought together philanthropists, foundations, academics, and innovators to focus on understanding the passion and values of philanthropy and its possibilities and strategic practices that create greater impact. The highlight of the event was a candid discussion with Tom Steyer and his wife Kat Taylor - who have signed the Giving Pledge - alongside panels that covered an array of relevant topics from the power of collaboration, networks, evaluation, and learning to innovations like games for social change*. On impact investing, speakers highlighted different models (both familiar and unfamiliar), including the Omidyar Network, social impact bonds, community development financial institutions, and the Nonprofit Finance Fund.

Some key takeaways include:
  • The impact investing field is still in a proof of concept stage.
  • It is import to conduct financial and impact due diligence on the front-end as well as to evaluate investment on the back-end.
  • Impact investing is not philanthropy – it tries to accomplish something that philanthropy and government do not know how to do.

Not surprisingly everyone agreed that evaluation is HARD. According to Steve Goldberg of Caffeinated Capital, of the ten largest federally funded programs, only one has demonstrated success. That may be a clear indicator that – at least according to the professionals at USC – impact investing is still in the “proof of concept” stage.

The second conference we attended was the Council on Foundation’s Annual Family Philanthropy Conference, which offered a three session impact investing track led by professionals from Mission Investors Exchange, RSF Social Finance, and Confluence Philanthropy, among others. These panels focused on some of the granular details of MRIs, PRIs, and broader “impact investing”, as well as valuable insights from the audience members from foundations engaged in this area.

The biggest message: 
  • The primary challenge is convincing others of the opportunity and value of impact investing. (According to participants, CFOs, accountants, and trustees are the most difficult to convert.)
A particularly engaging presenter was Charles Kleissner, the co-founder of the KL Felicitas Foundation – a foundation that has led the way in putting both annual disbursements and assets into impact-first and financial-first investment vehicles. Kleissner spoke of how he arrived at impact investing – seeing it both as an alignment of his values and intentions, as well as a more efficient use of his capital. He considers himself a “100% folk” (i.e. someone who has 100% of his wealth in impact investing) and says now there are at least fix or six people in the world who are “100% folks” in all asset classes.

Impact Investing in Medical Research

So what are some potential examples of impact investing in medical research? Well it depends on what kind of entity is involved. Individual accredited investors can invest in companies that are developing new therapies for unmet medical needs. A foundation could use a program-related investment (PRI) to make a loan to a nonprofit research institution to finance a potentially high-impact research project. Philanthropic funds could also be invested at market or below market rates in commercial entities that meet a foundation’s mission, such as advancing the development of new medicines. (The Bill and Melinda Gates Foundation did this in the case of Liquidia in 2011).

Obviously, there is a lot of potential for growth and sophistication in impact investing. This is likely just the beginning of what you will hear from PAS on impact investing this year, especially how it relates to medical research. So stay tuned!

*Relevant Links

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