AQAL Investing: The Future of Venture Capital Investing Dr.Bozesan

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<ol><li> 1. AQALINVESTING:ANINTEGRALAPPROACHTO THEFUTUREOFINVESTING UnleashingthePowerofCurrentTrendsfortheBenetofAll MarianaBozesan,PhD ClubofRome,fullintl. member Founder&amp;GeneralManager,AQALCapitalGmbH,Munich SeniorResearchFellow,Humboldt-ViadrinaSchoolofGovernance,Berlin February11th,20142014AQALCapital.StrictlyConden:al. </li><li> 2. OUTCOMESTODAY Demys:fyingthelandscapeofratherconfusedinvestors Understandingthehiddendeterminants,context,andtrends Unleashingthepoweroftheintegralmodelforthebenetofall 2014AQALCapital.Allrightsreserved.StrictlyConden:al.1 </li><li> 3. OUTCOMESTODAY Demys:fyingthelandscapeofratherconfusedinvestors Understandingthehiddendeterminants,context,andtrends Unleashingthepoweroftheintegralmodelforthebenetofall 2014AQALCapital.Allrightsreserved.StrictlyConden:al.2 </li><li> 4. Lehman,Fukushima,Mado,Libor, ClimateChange,DebtCrisis2014AQALCapital.Allrightsreserved.StrictlyConden:al.3 </li><li> 5. leadtowealthownerssinking condenceinins:tu:onalinvestors**Source:BCGReport,RegainingLostGround:Resurgentmarketsandnewopportuni5es.Becerraetal.2010. *Source:BCGReport,RegainingLostGround:Resurgentmarketsandnewopportuni5es.Becerraetal.2010.2014AQALCapital.Allrightsreserved.StrictlyConden:al.4 </li><li> 6. &gt;=10%ofHighNet-WorthIndividuals wantsustainabilityinbothnancial termsandimpact,butcannotgetit 2014AQALCapital.Allrightsreserved.StrictlyConden:al.5 </li><li> 7. .becauseinnova:venancial productsthatcanfullltheirneeds aremissingatlargescale2014AQALCapital.Allrightsreserved.StrictlyConden:al.6 </li><li> 8. THUS,MANYHNWIAREBYPASSINGINSTITUTIONS Seekingalterna:vestotradi:onalfundproducts,odensoberedbyweakerthanexpectedperformance Wealthownersareself-organizing: AVIVACorporateSustainabilityCoali:on($2trillion) RequesttoUNmemberstatestoadhereanddevelopregula:onsforglobalframeworkoncorporatesustainability repor:ng Intl.policyframeworkforcompanydisclosure,transparency,accountability,responsibility,incen:vesInterna:onalIntegratedRepor:ngCommiiee(IIRC) Interna:onalStockExchangeIni:a:ve:RIO+20 Reques:ngsustainabilitylis:ngrules;&gt;43%ofallstockexchangesworldwideadheredtothemalreadyNaturalCapitalDeclara:on Commitmentofthenancialsectortowardtheintegra:onofnaturalcapital(earthsassets&amp;ecosystemservices) criteriaintonancialproductsandservicesSustainableCapitalismManifestoAlGore&amp;DavidBlood GlobalRepor:ngIni:a:ve(GRI):SustainableRepor:ngGuidelinesG4 TheGivingPledge:&gt;50Billionairesstar:ngwithWarrenBuet,Bill&amp;MelindaGates,R.Branson,etc. GIIN/IRISbyTheRockefellerFounda:on Self-organizingfamilyocesincludingPYMWYMIC,AQALInves:ng,RDSCapital,TONIIC ImpactInves:ngisodenmissedbyins:tu:onalinvestors(only5%useit)vs.10%ofHNWI* TheBCorpDeclara:on&amp;theConsciousCapitalismMovementincl.GIIRS *Source:J.P.Morgan&amp;GIINReport:InsightintotheImpactInvestmentMarket. 2014AQALCapital.Allrightsreserved.StrictlyConden:al. December14,2011 7 </li><li> 9. 2014AQALCapital.Allrightsreserved.StrictlyConden:al.8 </li><li> 10. GLOBALALLIANCEFORBANKINGONVALUESREPORT* withtotalassetsexceeding$60 billionhas Eliminatedthemythabout lowerreturnsthrough sustainability Beierreturnsonassetsthan regularbanks Signicantlyhigherlevelsof growthinloansanddeposits Higherandbeierqualityof capital Revealedthatsustainable banksaremorerobustand resilientthantradi:onalones GSIFI=GlobalSystemicallyImportantFinancial Ins:tu:ons *Source: GABV. (2012, March). Global alliance for banking on values: Strong, straight forward, and sustainable banking. Financial capital and impact metrics of value based banking. Full report. March 2012. Downloaded May 15, 2013 from http://www.gabv.org/wp-content/uploads/Full-Report-GABV-v9d.pdf 2014AQALCapital.Allrightsreserved.StrictlyConden:al.9 </li><li> 11. TRADITIONALINVESTINGISCHALLENGED* FinancialcrisisleadtofearanduncertaintyTRADITIONAL INVESTINGFallingrevenueandmargins Massivecapitalmigra:onProtMetricsFrustratedwealthownerslosingtrustintheirassetmanagers Alterna:veandcustomizedinves:ngareontherise Tradi:onalinves:ngodenfocusedonshort-termprotmaximiza:on attheexpenseoflong-termhealthofglobalcommunity,culture, environment,ethics,andoverallhumanhappiness Tradi:onalinvestmentmetricsodenmissedsustainable,:me-based businessesandresponsibleinvestmentopportuni:es Manytradi:onalassetmanagersfailedtodevelopacorecompetency inalterna:veinves:ngopportuni:esincludingimpactinves:ng(SRI/ RI/ESG)e.g. WALLSTREET BERKSHIRE- HATHAWAY KKR SEQUOIACAPITAL Prot *Source:Mulcahy, D. &amp; Weeks, B. &amp; Bradley, H. S., (2012, May). We have met the enemy . And he is us: Lessons learned from twenty years of the Kauffman Foundations investments in venture capital funds and the triumph of hope over experience. Kauffman Foundation Research 2014AQALCapital.Allrightsreserved.StrictlyConden:al.10 </li><li> 12. 2014AQALCapital.Allrightsreserved.StrictlyConden:al.11 </li><li> 13. ImpactInves:ngisgrowing butitisfragmented2014AQALCapital.Allrightsreserved.StrictlyConden:al.12 </li><li> 14. IMPACTINVESTINGISFRAGMENTED INTERMSOFMOTIVESANDAPPROACH TwotypesofInvestors* Financial(Prot)FirstInvestors Pursuetheop:miza:onofnancialreturnsbefore havinganimpactoor Investorsarenotwillingtoacceptlowerthanmarket returnsasacosttoop:mizingsocialorenvironmental goods,althoughtheys:llmakeaposi:veimpact Impact(People/Planet)FirstInvestors Seektoop:mizesocialandenvironmentalimpactwith anancialoor Forgreaterimpact,investorsarewillingtoaccept lowerthanmarketnancialreturnsIMPACT INVESTING SustainabilityMetrics: ESGe.g. GRAMEENBANK TRIODOSBANK GLSBANK BANKSARASIN TripleBoAomLine Planet People Prot*Deni:onader(Eurosif,2010,p.7) 2014AQALCapital.Allrightsreserved.StrictlyConden:al.13 </li><li> 15. GLOBALSUSTAINABLEINVESTING(SRI/RI)ISGROWING* GlobalSustainableInvestmentsusingsomekindofESGcriteriareached US$13.6trillion(=21.8%oftotalAuMin2012) Mostcommonstrategyisthenega:ve/exclusionaryscreening,US$8.3trillionAuM Norm-basedscreening,US$3.0trillionAuMmostlyEurope(65%ofknownSRIAuM) Posi:ve/best-in-classscreening1.0trillionAuM,mostlyUS Assetsu:lizingESGintegra:onareatUS$6.2trillion ImpactInves:ngthemeinvestmentsares:llfragmentedandcompara:velysmallatUS$ 89.0billion Sustainabilitythemeinvestmentsarealsocompara:velysmallatUSD83.0billion*Source:TheGlobalSustainableInvestmentAlliance(GSIA)Report2012,hip://gsiareview2012.gsi-alliance.org 2014AQALCapital.Allrightsreserved.StrictlyConden:al.14 </li><li> 16. GLOBALSUSTAINABLEINVESTING(SRI/RI)(COND.) Screeningofinvestments Nega:ve/exclusionaryscreening-Theexclusionfromafundorporyolioofcertainsectors,companiesorprac:ces basedonspecicESGcriteria Posi:ve/best-in-classscreening-Investmentinsectors,companiesorprojectsselectedforposi:veESG performancerela:vetoindustrypeers Norms-basedscreeningScreeningofinvestmentsagainstminimumstandardsofbusinessprac:cebasedon interna:onalnormsIntegra:onofESGfactors Thesystema:candexplicitinclusionbyinvestmentmanagersofenvironmental,socialandgovernancefactorsinto tradi:onalnancialanalysis.Sustainabilitythemedinves:ng Investmentinthemesorassetsspecicallyrelatedtosustainability(forexamplecleanenergy,greentechnologyor sustainableagriculture)Impact/communityinves:ng Targetedinvestments,typicallymadeinprivatemarkets,aimedatsolvingsocialorenvironmentalproblems Impactinves:ngincludescommunityinves:ng,wherecapitalisspecicallydirectedtotradi:onallyunderserved individualsorcommuni:es,ornancingthatisprovidedtobusinesseswithaclearsocialorenvironmentalpurposeCorporateengagementandshareholderac:on Thisstrategyemploysshareholderpowertoinuencecorporatebehaviorincludingthroughdirectcorporate engagement(i.e.communica:ngwithseniormanagementand/orboardsofcompanies),lingorco-ling shareholderproposals,andproxyvo:ngthatisguidedbycomprehensiveESGguidelines *Source:TheGlobalSustainableInvestmentAlliance(GSIA)Report2012,hip://gsiareview2012.gsi-alliance.org 2014AQALCapital.Allrightsreserved.StrictlyConden:al.15 </li><li> 17. INTEGRALINVESTORS:POSITIONINGANDDRIVERS HIGHFINANCIALFIRST IMPACTINVESTORSOp:mizenancialreturns whilemaintainingan impactoorFINANCIALRETURNSPureFinancial IMPACTFLOORPROFITFLOORLOW LOWINTEGRAL INVESTORSOp:mized,riskadjusted nancialreturnsand premiumimpactreturnsIMPACTFIRST IMPACTINVESTORS Op:mizesocial/ environmentalimpact whilemaintaining anancialoorPurePhilanthropy PhilanthropySOCIAL,ENVIRONMENTAL,ETHICAL,CULTURAL,&amp;HAPPINESSIMPACT2014AQALCapital.Allrightsreserved.StrictlyConden:al. HIGH16 16 </li><li> 18. 2014AQALCapital.Allrightsreserved.StrictlyConden:al.17 </li><li> 19. Theintegra:on betweenTradi:onalInves:ng andSustainableImpactInves:ngis neededinordertofullltheneeds ofleadingedgeinvestorstoday2014AQALCapital.Allrightsreserved.StrictlyConden:al.18 </li><li> 20. ANINTEGRATEDAPPROACH:AQALCAPITAL INTEGRALINVESTINGTRADITIONAL INVESTING ProtMetricsAQALInves:ng,NaturalInves:ng IntegralMetrics Interior Exterior Individuale.g. TRADITIONAL WALLSTREET BANKS AND VENTURECAPITAL FIRMS Prot IMPACT INVESTING SustainabilityMetrics ESG,IRIS,SAMEthics,Ego, EmoJons&amp; ConsciousnessBehaviore.g. GRAMEENBANK LGTVENTURE PHILANTHROPY TripleBoAomLine PeopleCulture&amp; Morals PlanetPeopleProtCollec:vePlanetProtIntegralInves:ngisbasedonKenWilbersIntegraltheorythatiswidelyappliedin50disciplinesincludingscience,poli:cs,economics,educa:on,medicine,andbusiness;KenWilberisendorsedbyNobelPrize laureateAlGore,formerUSPresidentBillClinton,formerSecretaryofStateHillaryRodhamClinton,andisalsousedi.e.atMcKinseyandCompany. Source:Wilber,K.(2000).Atheoryofeverything:Anintegralvisionforbusiness,poli5cs,science,andspirituality.Boston:Shambhala.2014AQALCapital.Allrightsreserved.StrictlyConden:al.19 </li><li> 21. WHATISINTEGRALINVESTING? IntegralInves:ngisaleadingedgeinvestmentmodelbasedonKenWilbersintegraltheory Itisaholis:cinves:ngvehiclethattargetsbothpremiummarketandpremiumimpact returnsforthebenetofall ItimplementstheParityofPeople,Planet,Prot,withPassionandholis:cPurposein inves:ng Itisaninvestmentthesisthatdrivestheself-actualiza:onofallpar:cipa:ngagentsby unifyinghumanitysvaluesspheres,theTrue,theGood,andtheBeau:fulininves:ng Itsde-riskingtoolsintegratetradi:onalnancialduediligence,withenvironmental,social, andgovernance(ESG)metrics,andwithcultural,behavioral,andconsciousness assessments 2014AQALCapital.Allrightsreserved.StrictlyConden:al.20 </li><li> 22. Whatistheevidence?2014AQALCapital.Allrightsreserved.StrictlyConden:al.21 </li><li> 23. 2014AQALCapital.Allrightsreserved.StrictlyConden:al.22 22 </li><li> 24. 2014AQALCapital.Allrightsreserved.StrictlyConden:al.23 </li><li> 25. SUSTAINABILITYPAYS STUDIESTHATPROVETHEBUSINESSCASEFORSUSTAINABILITY Businessescanimproveshort-andlong-termprotabilitythroughtheadop:onofsustainableprac:cesinthefollowingareas: NaturalResource,Energy,andOpera:onalEciency Reduceinputandoverheadcosts,militateregulatorysanc:ons,hedgeexposuretovola:lepricesandsupplychaindisrup:ons, andmi:gateenvironmentaldegrada:on,andconservecapitalforimplemen:ngalong-termgrowthstrategy-Seestudiesby GoldmanSachs,DeloiAe,InterfaceInc.,McKinsey,Pricewaterhousecooper,CenterforAmericanProgressHumanResourcesManagement Retainexperiencedworkers,preventthelossofcorporateknowledge,lowertrainingcosts,reduceemployeeabsenteeism, improveworkerproduc:vity,andrecruitthebesttalent-GoldmanSachs,Gallup,EconomistIntelligenceUnit,IBM,NEEFFinancialOpera:ons Increasemarketcapitaliza:onandstockgrowth,improveinvestorrela:ons,lowerinsurancepremiums,decreaseborrowing costs,andImproveaccesstocapital-GoldmanSachs,EconomistIntelligenceUnit,Ethisphere,Gallup,IBM,Innovest,JohannesKeplerUniversity, SAM,UniversityofCaliforniaMarke:ngandCommunica:on Expandcustomerbase,dieren:ateproducts,improvebrandimage,andsecurecustomersthatarelesssensi:vetoprice,have greaterbrandloyalty,purchasemoreandmorefrequently-GoldmanSachs,Accenture,DeloiAeCollabora:onwithNGOsandGovernment Gainaccesstonewmarkets,beiersupply-chainmanagement,strengthenregulatorandcommunityrela:ons,improvebrand image,mi:gateriskstobrandreputa:on,militategovernmentsanc:on-GoldmanSachs,Accenture,EconomistIntelligenceUnit,IBM Source:Lovins,H.NaturalCapitalismSolu:onsWebsite.DownloadedFebruary7,2014fromhip://www.natcapsolu:ons.org/businesscasereports.pdf 2014AQALCapital.Allrightsreserved.StrictlyConden:al.24 </li><li> 26. MORENUMBERSANDFACTS. Overthenext40years,Genera:onXandtheMillennialGenera:onwill poten:allyinheritanes:matedUS$41trillionfromtheBabyBoomer Genera:on* Thesegenera:onsconsiderimprovesocietyastheirnumber1priorityof business** Leadersinsustainable,social,andgoodgovernancepolicieshave25% higherstockvaluethantheirlesssustainablecompe:tors 35%ofimpactinves:ngfundstargetinternalratesofreturn(IRR)of 20%!!!!!** *Source:Havens,J.JJ.,&amp;Schervish.(2003).Whythe$41trillionwealthtransferes:mateiss:llvalid:Areviewofchallengesanques:ons,BostonCollegeSocialWelfareResearchIns:tute. **Source:Drexler,M.,Noble,A.(2013).Frommarginstmainstream:Assessmentoftheimpactinvestmentsectorandopportuni:estoengagemainstreaminvestors,hip://www3.weforum.org/docs/ WEF_II_FromMarginsMainstream_Report_2013.pdf 2014AQALCapital.Allrightsreserved.StrictlyConden:al. 25 </li><li> 27. PREMIUMFINANCIALRETURNSFORINTEGRALCOMPANIES FIRMSOFENDEARMENT (FoEs)2007*GOODTOGREATCOMPANIES (GGCs)2002 Nucor;Kimberly-Clark Kroger;Walgreens WellsFargo;GilleieSample:3.0x higherROIthanmarket average (S&amp;P500)over 15years INTEGRALLY ACTINGBUSINESSES TheContainerStore EnteliosAG,WholeFoods TraderJoes;Patagonia DM,REI,StoneyeldFarmsPatagoniaAmazon SouthwestAirlines IKEA;BMW;eBay, AVEDA Sample:8.0x higherROIthanmarketaverage (S&amp;P500)over10years;and3.1x higherthanGGCs15Year CumulaJve Annualized10Year CumulaJve AnnualizedSample:WholeFoods: +40% HigherROIthanFoEs over10years (1800%shareholdervalue1995 2006) 5Year CumulaJve Annualized3Year CumulaJve AnnualizedFOEReturn1646.1%21.0%254.4%13.5%56.4%9.4%77.4%21.1%GTGReturn177.5%7.0%14.0%1.3%-35.6%-8.4%-23.2%-8.4%S&amp;P500Return157.0%6.5%30.7%2.7%15.6%2.9%10.3%3.3%Note: Company returns are total returns with dividends reinvested and compounded** *Source:Sisodia,R.,Sheth,J.,Wolfe,D.B.(2007).Firmsofendearment:Howworld-classcompaniesprotfrompassionandpurpose.NewJersey:WhartonSchool,p.16;**Source:Mackey,J.,&amp;Sisodia,R.,(2013). ConsciousCapitalism:Libera:ngtheheroicspiritofbusiness.Boston:HarvardBusinessPressReview.2014AQALCapital.Allrightsreserved.StrictlyConden:al.26 </li><li> 28. OUTCOMESTODAY Demys:fyingthelandscapeofratherconfusedinvestors Understandingthehiddendeterminants,context,andtrends Unleashingthepoweroftheintegralmodelforthebenetofall 2014AQALCapital.Allrightsreserved.StrictlyConden:al.27 </li><li> 29. THEFINANCIALCONTEXT Thedisasterof2007/2008nearlyruinedtheglobaleconomicsystem ByOct.2008,about$25trillionwereobliteratedfromthevalueofstockmarketsWhatstartedwithanini:alliquiditycrisisleadto Thedisrup:onofcapitalows Thecollapseofthetoobigtofailnancialorganiza:onsincl.LehmanBros.,FannieMae,and FreddyMac Severedownturnsintheglobalcasino/stockmarketsworldwide Currencycrunches,failureofmajorbusinesses,globalrecessionincludingtheEuropeansovereign- debtcrisis(Ireland,Portugal,Greece,Spain,Cyprus,etc.) LIBOR,Madoscandals Noendinsight!Q:Howsustainableareournancialandeconomicsystems?2014AQALCapital.Allrightsreserved.StrictlyConden:al.28 </li><li> 30. THESOCIALCONTEXT Realestatebubblebursts,foreclosures,evic:ons...</li></ol>