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Investors who are looking to do well for themselves while doing good in the world are getting more options these days, with alternative investments such as private equity becoming the new trend in impact investing.
Social impact investing, sometimes called double-bottom-line investing, is different from philanthropy, the rich giving away their riches out of noblesse oblige, a sense of duty. It’s also different than socially responsible investing, or mutual funds cutting off capital to publicly traded companies considered irresponsible by some investor groups. No nukes here. No tobacco there. And so on.
Unlike those mutual funds, social impact funds include private equity, venture capital, debt, working lines of credit and loan guarantees. The funds are operated both as for-profit or nonprofit entities. Terms of the investments are multiyear and sometimes made without an exit strategy.
This kind of direct investment helps wealthy investors give back, and has developed into a potentially powerful philanthropic force in recent years. Social impact funds create pools of capital that provide market-rate and below-market-rate investments in fields with pressing social needs, such as education, green technology, and community development.
So the investment might be a venture capital-type investment in a new curriculum for at-risk preschoolers. Or it might provide the capital for a low-cost loan for a charter school.
In most cases, the investments are still limited to the wealthy or accredited investors, but that is changing, and crowdfunding is expected to alter the playing field even further. Calvert Investments, for example, offers a high social impact investments program in which investors can put as little as $20 into local projects.
“Massive competition exists among entrepreneurs, Wall Street and philanthropists to seize this opportunity,” said Bruce Hoyt, senior vice president of Gary Community Investments, a five-year-old education-based impact fund in Denver. “We’re no longer a nascent industry.”
This piece originally appeared in Marketwatch. Click here to read the entire piece.
