Thursday
June 2
2011

Diana Hollmann

SOCAP/Europe: Three Bridges to Capital

SOCAP/Europe featured a number of sessions revolving around the question of how to provide effective and efficient intermediation between investors and entrepreneurs. One of the sessions introduced “Three Bridges to Capital” and moderated by Tim Freundlich of ImpactAssets. He kicked off the session outlining the current state of the impact investing space. Freundlich postulated that there are basically four phases of market growth and maturation:

  1. Early market formation, including finding appropriate definitions,
  2. Growing body of intermediation and brokerage with practitioners pursuing a collaborative approach,
  3. Building the infrastructure around the intermediation including appropriate metrics, rating systems, and exchanges, as well as
  4. Disintermediation as final stage, where impact investment enters the mainstream. This essentially allows everyone to do transactions without noteworthy intermediation.

According to Freundlich, the sector has largely passed the first phase (though not completely) and is well into the second phase. The third phase has been entered but we are still in its beginnings. The fourth phase is still very much a vision for the future, probably not realizable until SOCAP 2015 or 2020; or maybe even later…

In the session “Three Bridges to Capital” Freundlich of ImpactAssets, Bill David of GATE Impact, as well as Stephani Nieman of GIIRS provided insight into the current state of their respective initiatives. Interestingly, all of the initiatives just made a significant step to the next level: ImpactAssets and GATE Impact launched pilots and GIIRS wrapped up its first round of ratings for companies in emerging markets.

ImpactAssets just soft launched its ImpactAssets 50 listing of impact investment fund managers at the end of last week; the actual launch is intended for later this year. The listing provides a starting point for those interested in the sector – particularly for investors and their financial advisors – to gain insight into who the top impact investing fund managers are structured by asset class, region and category. ImpactAssets 50 is currently only focused on U.S. fund managers, however, a similar listing for Europe is being considered.

GATE Impact launched its GATEway platform pilot at beginning of this week. The online platform is intended to provide a rich resource for both institutional and individual investors as well as social enterprises to connect. Additionally, GATEway will provide informational content about the impact investing space (e.g. independent research, blogs and other related resources). The pilot is currently limited to Prudential’s social investment portfolio, but is intended to be expanded soon. The idea is to quickly include big investors that have large portfolios. This is to establish a secondary market place to “lure liquidity”. GATEway builds on a platform that was developed and utilized in traditional transaction and portfolio management.

GIIRS just wrapped up its private beta tour, a comprehensive on-the-ground testing of the GIIRS assessment tool for emerging markets enterprises. The goal is to create a globally accepted rating system for the impact investing space. Still open is the GIIRS public beta round through which GIIRS asks those involved in the space to provide feedback on the its rating approach. Also, GIIRS is currently looking to recruit a group of European pioneer funds to apply GIIRS.

A key question that came up several times during the session was how initiatives such as ImpactAssets 50, GATEway and GIIRS may be able to gain and maintain trust amongst their stakeholders – a key ingredient for enabling successful intermediation. Fundamentally all three initiatives work with self-reported data. Freundlich said that those listed among the 50 impact investing fund managers were selected by an investment review panel of experienced practitioners. Bill mentioned that while there is a basic level of trust for those who request to join the platform, GATEway will perform background checks ensuring a high level of integrity. GIIRS ratings and standards are independently governed by thought leaders and practitioners from the impact investing space. Deloitte, as third party, also verifies the ratings and 10 percent of rated enterprises will be randomly selected for on-site audits.

Throughout the session all panelists made sure to stress the importance of collaboration among intermediaries: while all three initiatives aim to facilitate flow of capital into the impact investing space they complement rather than compete with each other.

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