Thursday
June 2
2011

Diana Hollmann

SOCAP/Europe: Marketplaces Start to Matter

Brian Walsh of Liquidnet, moderator of the “Marketplaces Start to Matter” session, opened up by stating that impact investing is still in a “chaotic” phase. It is an exciting time that requires building the right infrastructure able to take impact investing to scale. Marketplaces are key to bringing investors and enterprises together, and to enable efficient allocation of money to the most effective enterprises.

As Jeff Tuller, chief technology officer for Mission Markets and one of the panelists noted: this session should have been named differently. Marketplaces have always mattered, but it is now that they start to work in the impact investing space. Panelists Bill Davis of GATE Impact (who also participated in the SOCAP/Europe panel “Three Bridges to Capital” outlining the characteristics of the GATEway online platform), Tamzin Ratcliff of NeXii, Tuller of Mission Markets, and Predeep Jethi of the Social Stock Exchange explained how they are contributing to providing important infrastructure to reduce transaction costs for impact investing.

Different platforms

NeXii is a platform connecting and informing social purpose businesses, impact investors, technical assistance providers, and financial intermediaries. It consists of three main components: an Impact Venture Capital Platform, an Impact Investment Opportunities Platform (a private placement platform with regulated settlement and clearing) as well as an Impact Exchange (iX). The latter was formally announced at SOCAP/Europe. It has been established in collaboration with the Stock Exchange of Mauritius (SEM) and constitutes a publically regulated impact exchange board. By allowing multi-currency trading (Euros, British Pounds and US Dollars) currency risk is reduced. With SEM as part of the World Federation of Exchanges (and present with international data vendors such as Bloomberg and Thompson Reuters) iX builds on a strong seal of approval – again an important ingredient for building trust in the platform among stakeholders.

Tuller summarized the key considerations shaping Mission Markets with three terms: distribution, liquidity and transparency. The platform should have as much coverage as possible both in terms of listings but also with regard to partners. The consideration of liquidity issues emphasizes that entry and exit need to be made as easy as possible; this is true for primary (initial offerings) and secondary trading (reselling). Tuller stressed transparency to be of great relevance, too. The platform needs to enable informed decisions. For this purpose Mission Markets developed an own standard for informed metrics named Mi4.

Jethi presented the idea of the Social Stock Exchange (SSE) that allows trading of securities in social enterprises on a platform overseen by a financial services authority, with the safety of full regulation and compliance. Similar to the other initiatives presented in the panel, SSE is meant to aggregate investment opportunities to increase their visibility, facilitate search and due diligence and – going yet a step further – eventually allow each citizen to invest in social enterprises.

Different perspectives

Even though all marketplaces address the same issue, namely facilitating transactions between investors and investees, panelists provided quite varied views on a number of issues:

On the question why it would be necessary to have tailored marketplaces for the impact investing space panelists expressed slightly different views. Pradeep of SSE emphasized the need for aggregation to increase visibility for social enterprises. While there are some social enterprises currently listed on global stock exchanges they need targeted exposure to impact investors rather than, for instance, hedge funds that are dominating those traditional marketplaces. Tamzin was more hesitant to say that a different set of marketplaces is needed. From her experience different tools are required for different stages, however, ultimately “you would want a system that works across the board.”

While the variety of different marketplaces might be confusing to those just entering the impact investing space, Tamzin explained that the diversity of exchanges evolving is helpful and will “thicken the infrastructure and drive down transaction costs.” Comparing it to the traditional investment space, Davis noted that impact investing is well underrepresented in terms of exchanges in place. We are currently still at the infancy of efficient dispersement of capital into the market.

The question on whether there is more capital demand or supply was approached from different perspectives, each one providing one bit of the big picture. Tuller of Mission Markets said that they currently have a backlog of $USD 400 million in capital demand waiting for investors. On the other hand, Davis of Gate Impact noted that it is difficult for investors to identify qualified deals – both in terms of necessary documentation and metrics matching the mission of the investor. Tamzin added a geographic perspective noting that in the North there is more supply and in the South there is more demand. The challenge is to bring both together – something to be addressed by “intermediaries with muscles.”

Also with regards to whether there will be a more common vision about measurement of social impact, panelists did not quite agree. Jeff assumes that eventually there will be a more common approach to metrics. Pradeep is not so sure if there will be one standard to work with. Rather there will be a number of standards that investors will use and gravitate towards (similar to the different accounting standards being used in business). According to Tamzin, also stories will remain part of impact investing reporting.

Common purpose

Overall, the session provided a great overview of the current status of impact investing marketplaces. While views on particular issues varied, all panelists stressed the importance of the current need for impact investing marketplaces and their role in reducing transaction costs and growing the market. Particularly the shift from the development to implementation is encouraging (also SSE aims to launch soon). The variety of perspectives present in the panel should be fruitful in building a diversified and focussed set of marketplaces for the various needs of impact investing stakeholders.

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