Moving from a***hole investing to investing
Wednesday, 17th July 2019 at 5:59 pm
Daniel Madhavan, the CEO of Impact Investment Group, shares three things he doesn’t like about setting an allocation for impact investment and why it’s useless to put “impact” into a single unified bucket of delicious goodness.
I don’t even know how to spell a***hole. Is it “ss” or “rse”? I’ll come back to why that’s important. In the meantime…
I often get to discuss impact investing with foundations and philanthropic groups, and often they ask “should we set an ‘allocation’ for impact investment?” (For all of the non-finance types reading this – ie the normal people – an “allocation” in your investment portfolio is just a percentage of the portfolio you have set aside for a specific purpose).
Let’s say you have a portfolio of $1 million and you set aside a 10 per cent allocation for impact investment. You have now committed to investing $100,000 in stuff that supports positive impact. That’s awesome.
You might have guessed that my general response is very positive. But, after giving impact investing allocations a massive loving hug in front of you… I am now going to turn ninja assassin on my own answer and share three things I don’t like about that approach.
It’s kind of like throwing rocks at someone while you decide what to buy them for their birthday. You really want to take time to get them something amazing, so you spend a long time throwing rocks until you really nail the gift idea.
Was that a little unclear? Let me walk you through it. Often a foundation might decide to “allocate” 10 per cent of their portfolio to impact investing. Then they get super tied up wanting to perfectly align this 10 per cent allocation to their mission. This is a cool and noble thing to attempt, but it often misses an important fact. The 10 per cent is currently invested in stuff that doesn’t further the mission but is also doing terrible things! So although the “allocation” intention is great, maybe just start by being “better” instead of setting the bar at “perfect” ie stop throwing rocks as your buddy whilst you get the gift idea right, trust me, they will thank you!
So, following a long rant on unified buckets, free range egg certification and rock throwing I still come back to my first answer. Impact investing is awesome.
If you’re a foundation you should absolutely be an impact investor. The money you manage and invest is there for the public good, so extract every last good out of it you can. Do it in the way you grant and the way you invest.
If setting aside an allocation is the way to get started, then do that. Don’t let me discourage you because that is definitely not my intention. I just want to throw up a few other things I think are worth considering as we move away from a***hole investing towards investing.