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Connecting Impact Investing to Significant Capital
PERSPECTIVE
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3
Connecting Capital to Impact Investments
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Connecting Capital to Impact Investments
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1) Understand the landscape and then choose a Market
2) Understand how and why products are “bought” in the unique channel you are pursuing, including the trends that will influence FUTURE behavior
3) Position for success and “sell”
The Capital Landscape (for scale)
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Three Large Potential Markets for Impact Investing Products
Sources: Merrill Lynch Cap Gemini 2010 World Wealth Report, McKinsey & Co The Asset Management Industry 2010
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1) Understand the landscape and choose a Market
2) Understand how and why products are “bought” in the unique channel you are pursuing, including the trends that will influence FUTURE behavior
3) Position for success and “sell”
Connecting Capital to Impact Investments
Institutional - Globally
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Large• Endowments &
Foundations• Pension Funds• Fund of Funds• Family Offices
Intermediary“Gatekeeper”
Consultants
Board
Key Issues for Access:
• Style Box Fit• 3 – 5 year Track Record• Team Longevity and Stability• Disciplined Performance Metrics• 24 – 36 mo Lead Time to Close (LTC)• Typically last in to new ideas
Small• Endowments &
Foundations• Pension Funds• Fund of Funds• Family Offices
Consultants
Consultants and/or IC
BoardCIO or IC
CIO or IC
• Relationship to get meeting• Asset Allocation Fit• Track Record• 24 – 36 mo LTC
CIO
High Net Worth – U.S. Perspective
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Delegators• Private Banks• Trust Companies• RIAs• Managed Account
Platforms
Intermediary“Gatekeeper”
Prod Cttee +/or IC
1st - Prod Cttee 2nd Advisor
Key Issues for Access:
• Fiduciary Responsibility• Proprietary vs. true Open Arch.• Asset Allocation Fit• Capacity of non-registered products
for relatively small allocation• 12 -18 mo LTC• Difficult to influence as a group
Advice Seekers• Wealth Advisory
Firms• Brokerage Firms• On-line Platforms
IC
Prod Cttee
• Asset Allocation Fit• Product Overload• Capacity of non-registered
products for relatively small allocation
• Multi-Step Sale 18 – 24 mo LTC
Prod Cttee
Retail – U.S. Perspective
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Intermediary“Gatekeeper”
1st - Prod Cttee +/or IC
2nd - Advisor
1st - Prod Cttee 2nd Advisor
Key Issues for Access:
All Other AUM• Boutique Firms
(RIAs & Banks)• Brokerage Firms• Financial Planners
• On-line Platforms Prod Cttee
• Registered Product• Asset Allocation Fit• Product Overload• Capacity• Institutional Sale at Platform Level• Wholesaler Sale at Financial
Advisor Level• Multi-Step Sale 18 – 24 mo LTC
IRA Rollovers• Boutique
Firms(RIAs & Banks)• Brokerage Firms
401ks• Registered Product• Daily Liquidity• Complex, Multi-part Sale
1st – Platform2nd - Plan Sponsor
• Registered Product• Capacity• Institutional Sale
Why it Matters – Example (U.S. Individual Investors)
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Total AUM $ 29.776 T
Family Offices• Single Family (1,000)
• Multi-Family (4,000)
Private Banks• Top 20• Rest (950)
Fee-Only RIAs• Top 100• Rest (4,000)
Brokerage Firms• Top 4• Rest (5,050)
Self-Managed
$300 bil$750 bil
AUM % TotalProp.Only?
OutsideProd?
$7.3 T$4.1 T
$256 bil$1.44 T
$4.75 T$9.9 T
$980 bil
1.01%2.52%
24.52%13.77%
.86%4.84%
15.95%33.25%
3.29%
X
X
Unique
YES
YESYES
YES
Why it Matters – U.S. Example
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$ 12.05 T
Family Offices• Single Family (1,000)
• Multi-Family (4,000)
Private Banks• Top 20• Rest (950)
Fee-Only RIAs• Top 100• Rest (4,000)
Brokerage Firms• Top 4• Rest (5,050)
Self-Managed
$300 bil$750 bil
AUM % TotalProp.Only?
OutsideProd?
$7.3 T$4.1 T
$256 bil$1.44 T
$4.75 T$9.9 T
$980 bil
1.01%2.52%
24.52%13.77%
.86%4.84%
15.95%33.25%
3.29%
X
X
Unique
YES
YESYES
YES
40.47%
Why it Matters – U.S. Example
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$ 9.9 T
Family Offices• Single Family (1,000)
• Multi-Family (4,000)
Private Banks• Top 20• Rest (950)
Fee-Only RIAs• Top 100• Rest (4,000)
Brokerage Firms• Top 4• Rest (5,050)
Self-Managed
$300 bil$750 bil
AUM % TotalProp.Only?
OutsideProd?
$7.3 T$4.1 T
$256 bil$1.44 T
$4.75 T$9.9 T
$980 bil
1.01%2.52%
24.52%13.77%
.86%4.84%
15.95%33.25%
3.29%
X
X
Unique
YES
YESYES
YES
33.25%
Key Trends
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Key Trends
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• Strong growth for income-generation, risk-management, and outcome-oriented products.
• The impending retirement of the 76 million baby boomers will result in 2/3 of all investable assets being controlled by households in the income/protection/preservation mode.
• As much as 25 – 30% of leading firms’ earnings will be derived from products they aren’t even offering today.
• The increasing institutionalization of the retail sale will require asset managers to take a new approach to third-party distribution and client service.
• Home-office gatekeepers will wield far greater influence.
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1) Understand the landscape and choose a Market
2) Understand how and why products are “bought” in the unique channel you are pursuing, including the trends that will influence FUTURE behavior
3) Position for success and “sell”
Connecting Capital to Impact Investments
Positioning - The Laws of Perception
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• There is no objective reality• Perception is reality• All that is real is the perception in the mind of the buyer
Law # 1
Law # 2
• Minds are very difficult to change• A perception is perceived as “right”• People are seldom, if ever “wrong”
Positioning: The Battle for Your Mind, Al Ries, Jack Trout
The Power of Perception Demonstrated
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What is the Most Popular Soup Brand in the U.K.?
The Power of Perception
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What is the Most Popular Soup in the U.K.?
The Power of Perception
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Americans eat 10 Billion bowls of soup every day yet Heinz soup failed in the U.S.
Why?
The Power of Perception
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Impact Investing Positioning Challenge
Investment? Philanthropy?
ImpactInvestments
?
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Current Impact Investing Product Landscape
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Low
High
Exp
ecte
d R
etu
rn o
n In
vest
men
t
HighExpected Social and/or Environmental Impact
“Standard”Investments
?
PHILANTHROPY?
NOT BINARY; however, as an industry we need to be clear in our positioning
Impact Investing Positioning Challenge
Investment? Philanthropy?
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Impact Investments Impact Philanthropy
Positioning Ourselves For Success
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INVESTMENT PRODUCTS ARE
SOLD NOT BOUGHT
Asset Classes Today
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StocksBondsAlternativesCash
Hedge FundsPrivate EquityReal AssetsDomestic EquityForeign EquityFixed IncomeCash
RETAIL INVESTOR ALLOCATION
YALE ENDOWMENT ALLOCATION
ALTERNATIVES = 15%
ALTERNATIVES = 78.8%
The Tipping Point by Malcolm Gladwell
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1.The Law of the Few
2.The Stickiness Factor
3.The Power of Context
Three Rules of Epidemics
What Will It Take?
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• On-going Education
• Continued Building of Infrastructure
• A Few Products at Scale
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We have both
the OPPORTUNITY
and
the IMPERITIVE
to bring about compelling change!
Behavioral Change Takes Time