Conventional wisdom

ByEd Dugger

QUESTIONING THE WISDOM OF CONVENTIONAL WISDOM 

Investment managers like to play within the rules. That’s the job: protecting against downside and working within a portfolio structure that delivers maximum returns. That approach has created wealth and high-performing companies. Staying in line with the conventional wisdom has been the most responsible course.

But now there are dramatic events in play. Investing is being redefined in the face of converging forces that are escalating on a global scale. Ever-increasing inequities are threatening our social, ecological and economic systems. Portfolio managers are now pressed to include both negative and positive investment impacts in their decisions, and to make unconventional choices.

Here’s the Question

Can you structure a portion of your portfolio to do a world of good and still generate market rate returns? It’s a serious question. We know it’s a challenging one. You might also ask what’s a responsible or even realistic fraction to commit to achieving impact returns, and what are appropriate impact criteria? All of this deserves diligent consideration.

We’re not suggesting that anyone should make a leap of faith. We invite you to apply a sense of healthy skepticism to your decision-making process. The data are now accumulating to challenge the prevailing wisdom that values-based investing necessarily produces lower returns. We believe there are new paths to prosperity that are hiding in plain sight, and that there are many more ways besides the conventional approaches to make wise and well-informed choices.

Safety in Numbers 

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If you’re contemplating some form of impact investing, you’re on safer ground than you might think. As a serious investor, you can follow the conventional wisdom that says you have to choose between your social values and the value of your portfolio. Or you can take advantage of publicly available data that indicate you don’t have to make that choice.

Case in point. Compelling Evidence from the Social Capital Markets Conference. “The Results Are In: Impact Funds Are Outperforming.” Click to Tweet.  Cambridge Associates and the Global Impact Investing Network (GIIN) presented new research in early October. It contains compelling evidence. Impact funds have not only generated attractive financial returns but have largely outperformed their traditional counterparts for more than a decade. The Impact Investing Benchmark is solid, honest, and insightful work from a reputable source. If you don’t have a couple of hours to invest in poring over the report, here are some highlights:

  • Impact investment funds that raised under $100 million returned a net Internal Rate of Return (IRR) of 9.5% to investors. These funds handily outperformed similar-sized funds in the comparative universe (4.5%).
  • Impact investment funds over $100 million returned 6.2%, with the comparative universe at 8.3%.
  • There are funds within the Impact Investing Benchmark that have performed in line with top quartile funds in the comparative universe, showing that market rates of return for impact investments are possible and also reinforcing that manager skill is paramount.

Investing in a Future that Works 

The evidence is accumulating: investing for returns and impact exhibits a range of performance just like any other sound investment strategy. The validity of including impact in your portfolio is no longer in question. With diligent, skilled management you can generate market rate returns, while also catalyzing positive social and environmental impacts.

We’d love to talk with you about exploring the possibilities. We are Reinventure Capital, and we’re reinventing investing.