How To Scale Your Fund Through Impact Investing
Over the past decade, the quantity of cash in impact investing has soared from $5 billion to $50 billion! Philanthropic investing has 10Xed itself!
But what's ‘Impact Investing’ or ‘Social Investing’?
As per Investopedia, "Impact investing aims to come up with specific beneficial social or environmental effects in addition to financial gains." "The purpose of impact investing is to use money and investment capital for positive social results." This new quiet investing has emerged as a promising niche in the last decade, and it has the potential to exponentially increase the likelihood of your fund and your chances of attracting investors!
Recently, I was speaking with Adam Campbell, the CFO of a $50 million family office. I was telling him that, as fund managers, to boost capital, I would like to not only pitch to family offices but also try and do it in a way that would be best. He said, "A lot of times, these high-net-worth individuals have already made a major amount of cash." They’re searching for more than an ROI. They’re looking to make an impression. They’re searching for a legacy.
Impact investing has a decent return, but it is not the best out there. However, it has become popular because it fulfills the innate human desire to live a fuller life by helping others. One example that one of my mentors shared with me was a small-home syndicate fund. This is where the fund gave people who couldn’t afford a home a chance to own one by giving them a lower interest rate than the bank would. These less-fortunate people would move into entry-level homes and pay off the mortgage—a rent-to-own kind of deal. This would help the participants improve their credit and eventually become homeowners! These were all cases wherein the banks didn’t need to get involved but ended up converting these individuals' lives. The return on this fund was only 6–7%, but they had no problem raising money because the investors loved the idea of being able to give back! Talk about social change.
Most people have a similar philosophy.
"I want to get rich so I can give back."
Have you seen the organic eggs at the grocery store? Consumers are willing to pay more because they feel like they are contributing to the greater good. That’s what we call riding the trend!
Find out what organizations your fund can give back to. This will not only increase the likelihood of people investing with you but also give your money and time more purpose. Here’s another example: Your fund could guarantee that "for every dollar we raise, we’ll give 10 cents to build houses in Honduras to build orphanages." Then, when you do build those orphanages, bring investors along!
Impact investing can help you as a fund manager build stronger bonds with your investors! Use your knowledge and skill set to help change the world for whatever you are passionate about!
Of course, make sure your financial standing as a fund is in line, but having a social cause can help you give back while making money in the process.