It may come as a surprise to some that social impact investing is not a new thing. It’s actually been around for decades now. What is new is that large investment banks have joined the fray of those offering products, and the topic has become more mainstream.
Following the 2008 financial crisis, there was a surge of banks from the U.S. to Europe who launched impact investing products.
No doubt, with bond and cash yields near historic lows, looming government debt concerns, and fears of inflation, impact investing represents a non-traditional asset class opportunity that is less vulnerable to public equity volatility, and is anti-cyclical.
In 2012, Morgan Stanley Smith Barney announced an Investing With Impact Platform for their clients. Financial investors access products such as exchange-traded funds, mutual funds, separately managed accounts, private equity products that aim for financial performance and social and environmental impact.
Upon the launch of the platform, Paul Hatch, head of Investment Strategy & Client Solutions at Morgan Stanley Smith Barney said that with over four million clients who have more than $1.7 trillion of investable assets, Morgan Stanley Smith Barney was in a “unique position to extend the reach of an investing with impact program to one of the largest sets of investors in the world. Even a fraction of this total represents a substantial amount that could be invested in support of the common good.”
Kathleen Leonard has been involved in social impact investing for some 30 years. In the 12 years prior to working at UBS as a first vice president of Investments, she founded and managed The Center for Responsible Investing, a resource she created to help individuals and institutions incorporate their social and financial goals. Before that, she worked at EF Hutton and Shearson. Kathy also serves on a variety of non-profit boards including the Social Investment Forum board.
Leonard notes that “more players have come into the field” in recent years and that this type of investment has become more competitive return-wise with other types of investments over the years.
As of 2012, nearly one in $8 under professional management in the U.S. – or about $3.07 trillion – followed investment strategies that considered corporate responsibility and societal concerns.
People “want to be good stewards of their money in many ways,” Leonard notes.
Leonard suggests looking at the Domini Social Index versus the S&P 500 as a way to put the performance question into perspective. The Domini 400 Social Index, which is maintained by KLD Research and Analytics is a market-cap weighted stock index of 400 publicly traded companies that have met certain standards of social and environmental excellence. The Domini has consistently outperformed the S&P 500 since inception in May of 1990.
Marco Marconi, Head of Philanthropy and Values-Based Investing for UBS has stated that UBS set up its Values-Based Investing team, of which Leonard is a member, a few years back with the intention of taking a leading role in helping this industry reach scale, become more cost-efficient, and make this currently nascent investment style available to a wider client base.
UBS recently launched a $100 million impact investment fund among high-net-worth clients to invest in small enterprises in developing countries. The fund reports back to investors and compensates fund managers based on social impact as well as financial returns.
UBS notes that small-medium enterprises (SMEs) especially are known to achieve the greatest social impact on local economies. The World Bank reports that SMEs employ over 64% of the global workforce, constitute the backbone of most developing economies, and are crucial drivers for entrepreneurship, economic growth and job creation.
While this fund is not available to U.S. investors at the current time, UBS does offer U.S. clients products including mutual funds, stocks, bonds and unit investment trusts that focus on the area.
