finding ethical alpha using aqal investing

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De-risking early stage investments using integral investing

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  • 2014 AQAL Capital. Strictly Confidential. FINDING ETHICAL ALPHA USING INTEGRAL INVESTING METHODS May 12-13, 2014, St. Augustine, Florida Mariana Bozesan, Ph.D., M.S. Head of AQAL Investing Family Office Founder & General Manager, AQAL Capital Club of Rome intl. full member www.AQALcapital.com
  • 2014 AQAL Capital. Strictly Confidential. THE FUTURE OF RAISING CAPITAL: WHY GPS AND ASSET MANAGERS MUST NOW EMBRACE HUMANITARIAN AND ENVIRONMENTAL RISK RETURN METRICS Mariana Bozesan, Ph.D., M.S. Head of AQAL Investing Family Office Founder & General Manager, AQAL Capital Club of Rome intl. full member AQALcapital.com
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 2 OUTCOMES TODAY Demystifying the landscape of rather confused investors, businesses, and society Understanding the hidden determinants, context, and trends Unleashing the power of the integral model for de-risking early-stage investments
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 3 TREND #1: INVESTORS CONVERGENCE
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 4 TRADITIONAL INVESTING IS CHALLENGED Financial crisis lead to fear and uncertainty Falling revenue and margins Massive capital migration Frustrated wealth owners losing trust in their asset managers Alternative and customized investing are on the rise Traditional investing often focused on short-term profit maximization at the expense of long-term health of global community, culture, environment, ethics, and overall human happiness Traditional investment metrics often missed sustainable, time- based businesses and responsible investment opportunities Many traditional asset managers failed to develop a core competency in alternative investing opportunities including impact investing (SRI/RI/ESG) 4 Profit TRADITIONAL INVESTING Profit Metrics e.g. WALL STREET BERKSHIRE- HATHAWAY KKR SEQUOIA CAPITAL Source: Mulcahy, D. & Weeks, B. & 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
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 5 IMPACT INVESTING IS FRAGMENTED IN TERMS OF MOTIVES AND APPROACH Two types of Investors: 1. Financial (Profit) First Investors Pursue the optimization of financial returns before having an impact floor Investors are not willing to accept lower than market returns as a cost to optimizing social or environmental goods, although they still make a positive impact 2. Impact (People/Planet) First Investors Seek to optimize social and environmental impact with a financial floor For greater impact, investors are willing to accept lower than market financial returns IMPACT INVESTING Sustainability Metrics: ESG Triple Bottom Line Profit People Planet e.g. GRAMEEN BANK TRIODOS BANK GLS BANK BANK SARASIN *Definition after (Eurosif, 2010, p. 7)
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 6
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 7 The integration between Traditional Investing and Sustainable Impact Investing is needed in order to fulfill the needs of leading edge investors today
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 8 AN INTEGRATED APPROACH TO INVESTING Integral Investing is based on Ken Wilbers Integral theory that is widely applied in 50 disciplines including science, politics, economics, education, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company. Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala. Integral Metrics Planet People Profit Ethics, Ego, Emotions & Consciousness Behavior ExteriorInterior IndividualCollective Culture & Morals INTEGRAL INVESTING AQAL Investing, Natural Investing Profit TRADITIONAL INVESTING Profit Metrics IMPACT INVESTING Profit People Planet Sustainability Metrics ESG, IRIS, SAM Triple Bottom Line e.g. GRAMEEN BANK LGT VENTURE PHILANTHROPY e.g. TRADITIONAL WALL STREET BANKS AND VENTURE CAPITAL FIRMS
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 9
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 10 AWAKENED INVESTORS HAVE APPEARED, OCCUPYING A SPECIFIC POSITIONING AND SHOWING PARTICULAR DRIVERS 10 FINANCIALRETURNS SOCIAL, ENVIRONMENTAL, ETHICAL, CULTURAL, & HAPPINESS IMPACT PROFIT FLOOR FINANCIAL FIRST IMPACT INVESTORS Optimize financial returns while maintaining an impact floor Philanthropy LOW HIGH LOW HIGH Pure Philanthropy Pure Financial IMPACT FIRST IMPACT INVESTORS Optimize social/ environmental impact while maintaining a financial floor INTEGRAL INVESTORS Optimized, risk adjusted financial returns and premium impact returns IMPACTFLOOR
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 11 TREND #2: CONVERGENCE OF BUSINESS MODELS
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 12 SOCIAL ENVIRONMENTAL PROFIT ETHICS EGO EMOTIONS CONSCIOUSNESS BEHAVIOR ExteriorInterior IndividualCollective CULTURE& MORALS PROFIT TRADITIONAL BUSINESSES SOCIAL BUSINESSES INTEGRALLY ACTING BUSINESSES (ESG/PRI DRIVEN ) e.g. DM, Puma, Whole Foods, Patagonia, REI SOCIAL ENVIRONMENTAL e.g. ENRON BP MONSANTO PHILLIP MORRIS e.g. GRAMEEN BANK OWNERS LGT VENTURE PHILANTHROPY PORTFOLIO COMPANIES BUSINESS INTEGRALIZATION
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 13 PREMIUM RETURNS FOR INTEGRALLY ACTING BUSINESSES *Source: Sisodia, R., Sheth, J., Wolfe, D.B. (2007). Firms of endearment: How world-class companies profit from passion and purpose. New Jersey: Wharton School, p. 16; **Source: Mackey, J., & Sisodia, R., (2013). Conscious Capitalism: Liberating the heroic spirit of business. Boston: Harvard Business Press Review. 15 Year 10 Year 5 Year 3 Year Cumulative Annualized Cumulative Annualized Cumulative Annualized Cumulative Annualized FOE Return 1646.1% 21.0% 254.4% 13.5% 56.4% 9.4% 77.4% 21.1% GTG Return 177.5% 7.0% 14.0% 1.3% -35.6% -8.4% -23.2% -8.4% S&P 500 Return 157.0% 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** Sample: Whole Foods: +40% Higher ROI than FoEs over 10 years (1800% shareholder value 1995 2006) Sample: 8.0x higher ROI than market average (S&P 500) over 10 years; and 3.1x higher than GGCs Sample: 3.0x higher ROI than market average (S&P 500) over 15 years GOOD TO GREAT COMPANIES (GGCs) 2002 Nucor; Kimberly-Clark Kroger; Walgreens Wells Fargo; Gillette INTEGRALLY ACTING BUSINESSES DM, REI, The Container Store Entelios AG, Riversimple Stoneyfield Farms, Whole Foods Trader Joes; Patagonia FIRMS OF ENDEARMENT (FoEs) 2007* Patagonia Amazon Southwest Airlines IKEA; BMW; eBay, AVEDA
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 14 TREND #3: THE EMERGENCE OF SECOND TIER HUMAN CONSCIOUSNESS
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 15 RATIONAL INTELLIGENCE THE TRUE - SCIENCE - ENLIGHTENMENT ERA DEMOCRACY NATION STATES MODERN MEDICINE SPACE SHUTTLE CIVIL RIGHTS & GREEN MOVEMENT FEMINISM SOCIAL BUSINESS CULTURAL CREATIVES: 25-30% EMOTIONAL ART, VALUES, MORALS, ETHICS THE BEAUTIFUL - ART - INTEGRALLY ACTING HUMANS INTEGRATING HUMANITYS VALUE SPHERES DeMedici Effect in the 21st century THE BEAUTIFUL - ART - THE GOOD - MORALS - THE TRUE - SCIENCE - EVOLUTION OF HUMAN CONSCIOUSNESS TO LATER STAGES OF DEVELOPMENT
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 16 OUTCOMES TODAY Demystifying the landscape of rather confused investors, businesses, and society Understanding the hidden determinants, context, and trends Unleashing the power of the integral model for de-risking early-stage investments
  • 2014 AQAL Capital. All rights reserved. Strictly Confidential. 17 THE FINANCIAL CONTEXT The disaster of 2007/2008 nearly ruined the global economic system By Oct. 2008, about $25 trillion were obliterated from the value of stock markets What started with an initial liquidity crisis lead to The disruption of capital flows The collapse of the too big to fail financial organizations incl. Lehman Bros., Fannie Mae, and Freddy Mac Severe downturns in the global casino/stock markets world wide Currency crunches, failure of major businesses , global recession including the European sovereign- debt crisis (Ireland, Portugal, Greece, Spain, Cyprus, etc.) LIBOR, Madoff scandals No end in sight! Q: How sustainable are our financial and economic systems?

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