For the past two years I have had the great good fortune to be part of the Imprint Capital team. That satisfying run had ended with the merger of Imprint into Goldman Sachs Asset Management.
I have been in and around what we now call impact investing for the past 25 years. People ask, “What did you learn from your time at Imprint?” The short answer is: a lot!
In case they might be of interest, several specific observations/reflections/predictions follow. They are mine alone and not necessarily shared by the individuals with whom I had the privilege to work at Imprint. They are also most relevant to firms of the type that Imprint was, namely asset managers that work with owners of capital to construct and manage portfolios of investments that seek both financial return and social/environmental impact. I believe we will see more of these in the years ahead.
Interest in investing to achieve both financial return and social/environmental impact will continue to grow. The pace will wax and wane based on macroeconomic dynamics and publicity about failures (there will surely be some), but the long-term trend points upward. It is driven largely by demographics – the rise of a generation with a more deeply rooted “both…and” orientation.
The investors to watch are those with flexibility to deploy capital across a range of risk-return outcomes. These will be the leaders. Investors that hew to traditional, narrow definitions of fiduciary responsibility will have more limited experience to offer. Look to individuals, families, and religious organizations, especially those that integrate their investing with their philanthropy.
The innovators do not allow the perfect to be the enemy of the good. They pick a place to begin, gain experience, learn, adjust, revise. Their tolerance for crafting the ideal, comprehensive strategy before commencing investment activity is refreshingly limited.
Customization is important. Owners of capital want solutions that address their particular return objectives and impact priorities. Pre-packaged portfolios are less appealing. Firms that work with investors to allocate capital will need to find ways to deliver a high degree of customization within a scalable business model.
Combining deep social sector expertise with seasoned investment talent is the secret sauce. Tension between these two competing competencies produces the most creative and impactful investment opportunities. Expect experimentation with a variety of operating models to create and maintain this dynamic.
Expertise across asset classes enhances the service offering. Skill and experience with private alternative investments is a necessary foundation for effective impact investing. Public market investing, on the other hand, is more about aligning with values than pursuing impact. Nonetheless, facility with the latter allows asset managers to construct comprehensive portfolio solutions for their clients. It also adds texture and nuance to consideration of newer, hybrid investment opportunities that bridge traditional asset classes.
Operational due diligence is a critical competency. Many of the investment managers in the impact investing sector are young firms with limited trackrecords. In that environment, operational due diligence needs to be a close companion to investment due diligence. It is also an area where there is good potential to add value to investee partners and strengthen relationships with them as they grow.
Impact monitoring and reporting is a key ingredient for success. Clients want impact reporting along with conventional financial reporting. It helps them assess whether their portfolios are accomplishing their objectives. Gathering information about impact is a labor; the data are imperfect; and presenting results in meaningful frameworks is time-consuming. Still, the firms that make this a priority and commit resources to improving their impact reporting year-to-year will have greater success.
Those are some of the high-level takeaways from the last two years. It was a rich learning experience, and I thank my colleagues for it, particularly Taylor Jordan and John Goldstein for giving me a senior leadership role in the pioneering, innovative company that they founded eight years ago.
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