meeting the challenge of impact investing incentives and business models (evans 2011)
TRANSCRIPT
Meeting the challenge of impact investing:
Optimizing the investment process
for returns and impact
Madeleine Evans
PRI-Mistra Dynamics of Responsible Investment Conference
Sigtuna, Sweden
Panel: Investing and the Public Good
28 September 2011
Madeleine Evans has recently completed her Master of
Public Administration at the London School of Economics as
a Thouron Scholar, where she focused on development
economics and policy.
Madeleine co-founded the Network for Impact Investing and
Social Enterprise (NiiSE) at the LSE, an organization
fomenting postgraduate students’ awareness, research and
careers in these fields, followed by a counterpart network
for young professionals, Impact Generation. Her personal
research interests span impact investing strategy, financial
regulation, and the role of financial markets in sustainable
development.
Prior to moving to London, Madeleine graduated from the
University of Pennsylvania with a B.S. from the Wharton
School and a B.A. in International Studies from the College
of Arts and Sciences.
Madeleine is currently working at the private equity fund
Terra Firma.
E-mail:
Address:
Flat 5
92 Redchurch Street
London E2 7GP
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About the researcher
The content in this presentation is the product of a year of investigation, culminating in a
dissertation for the Master of Public Administration Program at the London School of
Economics, entitled:
“Meeting the challenge of impact investing: How can contracting practices secure social impact
without sacrificing performance?”
The dissertation presents a strategic toolbox for investors with financial and non-financial
objectives. Content is based on lessons from economic theory of contracts and from in-depth
interviews with sixteen UK, German, and US impact investors (with a special thank you to DEG,
who provided generous access to data and support for this project):
The relevance of the ideas in this presentation will depend on the investor’s control over the
underlying portfolio, legal and funding constraints on contract structuring, and the degree of
active management pursued by the investor.
Copies of the paper or further details are available from the author. 3
About the research
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How does the nature of the investment and contracting process
drive the balance between
financial returns and positive impact?
How can investors manage these drivers
to increase welfare?
Entrepreneur
proposes idea to
impact investor
Entrepreneur
goes after profitInvestor wonders
what happened to
impact
The strategic challenge
The questions
Incentives matter
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Investor “blended” returns
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Market RelationshipContract
Choices by portfolio
business management
Acquisition Structuring Management
Market RelationshipContract
The business model
describes whether objectives are easy to jointly achieve
Cross-
subsidy
Lock-step
Trade-off
Synergy
The operating environment
makes certain models more likely or feasible
� Consumer preferences
� Supply chain dynamics
� Policy & regulation
� NGO and media activism
Values
Contracts can help investors
manage outcomes
only
they can measure well
^
Market RelationshipContract
Values
Valuable offers of future financing
can provide complementary incentives
Future
financing
Too risky
Market
connection
Technical
assistance
Market RelationshipContract
> Next best
option
Values
Final thoughts
Trade-offs are manageable
We have an initial understanding of our tools and
of common practical pitfalls
We need to make data work harder