Profile: Impact Investment Trust
Gary Mead, SSX editor and Orwell partner, talks to Eighteen East’s Thomas Venon, co-founder of the Impact Investment Trust
One of the frequently repeated gripes about the impact investment world is that it’s effectively closed-off to the ordinary retail investor, those with a few hundred or thousand available to invest. It’s a strange irony that only the rich, it seems, can put their money into investments that might make a difference to the sum total of human happiness. Of course there are places where people who aren’t high net worth individuals can stash their savings and still feel they are making a positive impact – but you have to search for them quite diligently.
But from 10 July this all changes – the minimum you’ll need is $1,000 to take a stake in the Impact Investment Trust PLC, a new trust that as of that date will be trading on the London Stock Exchange, while simultaneously becoming a member of the Social Stock Exchange. The dollar-denomination is because all the underlying investments are typically dollar-denominated.
I spoke to Thomas Venon, one of the co-founders of the trust, to find out more. Venon has a background in the asset management business and for a time worked with RBS, ABN Amro, and Old Mutual. His partners at Eighteen East, the promoter of the Trust, are Emmett Pearce and Dave Portmann. “The project really started through a conversation we had with DFID, the Department for International Development in the UK government. They have something called the Impact Programme, which wants to help build the market for impact investing, and as part of that wants to make it available to the widest possible audience, which is exactly the angle we were coming from.”
Impact investing in emerging markets – the areas that DFID focuses on – today is largely done through private debt and private equity, typically done through funds that are structured as limited partnerships. Says Venon: “these are structures that are extremely unfriendly for all but the richest individuals or institutional investors, with very high investment minimums, typically over a million dollars, and very long periods in which the capital must be locked away. And in terms of regulatory environment, it’s light, to put it mildly. Typically limited partnerships are located in sunny islands or other offshore centres.”
Venon and his Eighteen East partners have considerable experience in bringing to market private equity infrastructure vehicles and this has proved useful in the development of their Impact Investment Trust. “We thought, let’s not reinvent the wheel here, let’s use a tried and tested structure, an investment trust, to help bring the impact investment world to a much wider audience. This is something that resonated well with DFID and they helped with funding to get the project started,” says Venon.
While for Venon “the term impact investing is relatively new, but the strategy when it comes to developing countries isn’t. The Development Finance Institutions [DFIs] of the world have been busily implementing an impact investing strategy. So combining a tried and tested structure with a tried and tested strategy is a great way to make it easier for people to take perhaps their first steps into impact investing.”
Venon and his associates have partnered with Obviam, the investment adviser to the Swiss DFI, SIFEM, and which oversees more than 80 emerging market funds investments made since 1998 – implementing in other words exactly the same impact strategy as will this new Trust. “When it comes to impact investing people are often a bit confused about what we are talking about,” says Venon. “It’s not a well-defined term and it covers a lot of different things. It’s very important therefore to explain very precisely what it is we are trying to do. It’s very simple. Impact Investment Trust PLC is trying, through investment, to have a positive effect on the lives of poor populations in developing countries. The way we do that is through investment in SMEs, because SMEs are typically seen as underpinning good economic growth and providers of job creation. More specifically, by investing in SMEs that are in high impact sectors – education, healthcare, the agribusiness value chain, small-scale renewable energy, small-scale infrastructure, and access to finance – then products and services that we take for granted are made available to people in these countries, so that their lives look a little bit more like ours. And you can do that through an investment and aim to make a positive financial return.”
The Trust will invest in anything between 150 and 250 SMEs in these sectors, across all developing countries – it’s a global developing countries’ mandate, spilt roughly between 40% Africa, 40% Asia and 20% Latin America. The Fund is structured as a ‘fund-of funds’, and the pipeline of funds and SMEs should be compelling for impact investors. Says Venon: “It’s not reasonable to expect to add value to 200 SMEs across developing countries based in Europe or the States. It just doesn’t work. So the investment strategy is by working with local fund managers, who actually spend time with the portfolio of companies, and who add value to their development by providing critical skills, we deploy teams who work on the ground with these SMEs that the Trust invests in.”
The target for the IPO is up to $150 million. After the IPO the raised capital will be deployed across 10 to 15 local funds, which will each invest in 10 to 15 SMEs, making up the total exposure.
Why are Venon and his partners at Eighteen East Capital – who after the listing will step back from management of the Trust and adopt an investor relations role, placing the administration of the Trust in the hands of an independent board – interested in joining the Social Stock Exchange? “There are a number of reasons,” says Venon. “We think that by participating we are helping the Social Stock Exchange and we think it’s a very relevant initiative. It’s a great showcase for impact investing and social entrepreneurship, and generally investing for the right reasons. The more awareness it gets the better and it will end up benefitting us as well. The next thing – and this is very important for impact investing in general – is that we make sure we are delivering what we are promising. What we are promising is both a potential financial return and impact on the ground. And therefore measuring, reporting, validating that this is real is very important. Being a member of the Social Stock Exchange gives investors the comfort to know that there is an added layer of verification, because that’s what the Social Stock Exchange demands. To become a member they have to ‘buy’ your impact theory; to remain a member you have to demonstrate that you are delivering that impact.”