Impact Investors Scale to Solve the World's Social and Environmental Problems
Imagine investing in--not donating to--nonprofits that make small business loans in Appalachia, develop affordable housing in New Orleans, support fair trade initiatives for chocolate and coffee growers, or maybe extend credit to micro-entrepreneurs or small businesses that sell clean energy or deliver access to water in the developing world.
Or perhaps you prefer to invest in a for-profit loan fund that supports organic farms, or a private equity fund that preserves ranchland or develops sustainable forests. Or a venture capital fund focused on climate change solutions.
Welcome to the world of "impact investing," a way to invest to solve the world's social and environmental problems while earning a financial return--as little as a return of capital to as much as well above market rate.
These investments, which range from CDs in community banks to private placements limited to accredited investors, can also include various tranches in massive development projects involving partnerships between governments, foundations, banks and pension funds. An impact investment includes buying into an IPO, but not trading in the after-market. The rule of thumb: It must consist of new capital.
"People absolutely want to do more of this," says Patrick Drum, senior portfolio manager and financial advisor at The Arbor Group, the wealth management division of UBS Financial Services in Seattle. Drum points out that part of the attraction is the "high creativity" involved. "There are all kinds of structures that didn't exist a few years ago," he says. "They also like the fact that the assets are uncorrelated and that social impact can be measured."
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