NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

ImpactAssets recently released a report that explores how the millennial worldview influences the financial strategies of the next generation of investors. The Millennial Perspective: Understanding Preferences of the New Asset Owners draws on a variety of research as well as insight from investors. As a report co-author, I spoke with one of the report participants, Michael Sidgmore, to expand upon our discussion of the future of impact investing. Michael is the founder of NextGenEngage, an organization designed to create connections and educate investors with a commitment to both profit and purpose. He is also vice president, Investor Network at iCapital Network, an online marketplace that helps investors search, analyze and invest in leading alternative asset managers.

Lindsay Norcott: How do you see the next generation of investors being different from previous generations?

Michael Sidgmore: We are living in an era that is being shaped by generational shifts in money, mentalities and manpower. The mentality of investors has shifted from dollars and cents to dollars and sense. The structural shift of money thanks to a pending $41 trillion dollar wealth transfer from baby boomers to millennials means you have money in the hands of investors who think about investing in a fundamentally different way. If you overlay these trends with the increased use of technology that has created transparency and access to data and opinions, you end up in a very different place. Now, I don’t think that previous generations aimed to make the world a “worse” place with their investments, but with millennials we are seeing clear intentionality to make a positive impact through investing and business.

LN: Why do you feel a sense of responsibility to consider the social and environmental impact of your investments?

MS: We live in a time where the world’s biggest problems are front and center. The good news is that there has never been a better time to invest for profit and purpose. As investors, we have a responsibility to use capital as a tool to create positive change. Anyone managing money has always had fiduciary responsibility to be a steward of those assets by generating returns commensurate with risk taken. Now, risk management means considering social and environmental impact in addition to investment risk. There are probably few better examples than the “stranded assets” argument in the Carbon Tracker Report, which puts trillions of dollars at risk for investors.

LN: How did your personal interest in impact investing develop?

MS: After being unexpectedly sidelined by hip surgery while playing soccer in London, I read John Wood’s book, “Leaving Microsoft to Change the World,” which inspired me to work for his non-profit organization, Room to Read. Room to Read was a non-profit but its operational efficiency was unparalleled, which only enhanced its ability to create impact. Then as an undergrad at London School of Economics, I helped organize the world’s largest student conference on hedge funds and private equity, where I was constantly dealing with smart investors who were focused on generating alpha.

I couldn’t help but think if there was a way to combine the best of both the non-profit and investment worlds to generate market-rate returns and simultaneously make a measurable social or environmental impact. It was a 2010 report by JP Morgan and the Rockefeller Foundation, which said impact investing could evolve into a $1 trillion asset class in the foreseeable future, that brought me to impact investing. I began to read every research paper and book out there, where I saw three things: a lack of capital flowing into the space, a lack of investible deals, and a lack of connectivity between experienced investors and young investors interested in impact investing. So I decided to start NextGenEngage, which organized conferences and events for younger investors and social entrepreneurs so they could learn about impact investing and share their experiences and knowledge.

LN: What role does investing play in addressing some of the toughest global challenges?

MS: Some of the world’s biggest problems need market-based solutions and investment to solve problems at scale. But investment alone will not solve these issues. Investment, working in tandem with philanthropic capital, is important to seed a market. There is an important role for those willing to accept higher social returns and more modest financial gains because they can help bring a market to the point where financial-first investment can take a market to scale.

LN: How can experienced investors and next-gen investors work together for mutual benefit?

MS: The future of finance will be shaped by investors young and old who recognize these structural shifts of money and mentalities. We need to harness the expertise of the old guard in tandem with the energy and connectivity of millennials. It’s about leveraging the collective and collaborative capital of both older and younger investors. Experienced investors have capital in the form of experience and expertise. They have lived through multiple market cycles. Younger investors have capital in the form of connections, networks and an understanding of technology. It will take a collaborative, multigenerational effort to grow the field of impact investing, so it’s important that we create opportunities for younger impact investors to work with and learn from impact investing pioneers.

LN: What other resources are there for millennials interested in impact investing?

MS: Capacity building resources are essential tools for investors as impact investing continues to scale. ImpactAssets has played an important role by providing tools for investors to understand funds and investment opportunities, thanks to their ImpactAssets 50 report. The Global Impact Investing Network (GIIN), toniic and B Lab are some examples of organizations that have created standards and provided quality resources for the impact investing space. I’m a big believer in the power of creating networks to collaborate and share knowledge, which was the vision behind NextGenEngage. I’d encourage any millennial impact investor to seek connections with other investors as well as social entrepreneurs, in order to better understand this space so they can find the right way to engage with impact investing.

Lindsay Norcott is strategic initiatives officer at ImpactAssets.