Impact investing is a growing segment of the financial landscape where investors seek opportunities to deploy capital that generates above-market returns while also creating positive social or environmental impacts. Google recently restructured under a new holding company, Alphabet, to more easily fund high-risk, high-impact "moonshot" ventures through subsidiaries. While impact investing remains a small portion of total investable assets, interest is growing as individuals seek ways to make a difference through their investments. Impact funds allow individual investors to pool resources and invest in businesses aiming to improve issues like education, healthcare, and poverty. Several organizations are now working to develop benchmarks and increase transparency around impact investing performance to further legitimize and grow the field.

1. The ABCs of Impact Investing
September 28, 2015
by John Appleby
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily
represent those of Advisor Perspectives.
Impact investing is a small but growing segment of the financial landscape. It is coming to the fore as
individual investors seek to “do good while doing good.” Groups from wealthy entrepreneurs to the G8,
the UN and the Pope are talking about the subject. Here’s what advisors need to know if they want to
serve clients who strive for “impact” with their investing.
First, let’s look at how Google has bought into the impact-investing trend.
In a well-publicized, but somewhat puzzling move, Google, one of most recognized brands on the
planet, recently changed its name to Alphabet. This runs counter to all business school theory that
preaches the importance of building a dominant global name. Thus many MBA types were left aghast
at the news that overnight Google was now recast as a subsidiary to the Alphabet holding company.
Yet when you get beyond the noise, a story begins to emerge of a pair of founders – Larry Page and
Sergey Brin – who are not content to settle for incremental brick-by-brick approach to brand building.
Instead, they want to invest in high risk, high impact “moon shots.” “From the start we’ve always strived
to do more, and do important and meaningful things with the resources we have,” Larry Page wrote in
a press release in August. These high-stakes ventures – driverless cars, cancer drugs and virtual
reality to name a few – have now been placed in subsidiary businesses under the Alphabet umbrella.
There is great business logic behind the move. Each business is now accountable to the holding
company and any losses do not impact the still highly profitable Google franchise. The name, Alphabet,
also makes sense. A rate of return above normal – Alpha – and a gamble – bet.
The new-look Google is striving to make an impact on the world.
In many ways this decision adds to the mounting evidence that government aid and philanthropic
activities are not able to have the desired impact and the recognition that perhaps private enterprise is
the best vehicle to solve some of the world’s most intractable social problems. Indeed, Warren Buffett
presaged this trend when he famously left his wealth to the Gates Foundation.
But, if private enterprise is the way forward, how do individuals who lack the financial muscle of these
business icons make an impact on society? Is it possible to drive meaningful change with much
smaller wealth?
Welcome to the world of impact investing
Page 1, ©2015 Advisor Perspectives, Inc. All rights reserved.

2. We may look back at the financial upheavals of the first decade of the 21st century as a significant
turning point in human history. Since those dark days, there has been a growing consensus around a
belief that some of the world’s problems require new approaches. Perhaps, even, a tacit
acknowledgement that some problems cannot be left for others to solve. As a result, a growing number
of wealthy individuals are becoming attracted to a sector of the market called impact investing.
Impact investing can trace its origins to before the financial crisis, but it has only been since these
events that this area has taken on greater prominence. A simple definition of its raison d’etre is
“making a return while doing good.” In other words, investors seek opportunities where they can deploy
capital to make an above-market return while also benefiting society. The socially conscious investor
who seeks to make a rate of return above the market but does so by avoiding investments in
companies viewed as detrimental to society, for example tobacco and alcohol, differs from an impact
investor who seeks to make a difference by investing in businesses striving to improve human
wellbeing such as through education and healthcare.
The emergence of impact investing as an asset class is still very much in its infancy. According to the
Aspen Institute only $46 billion out of $80 trillion of investable assets is allocated to impact investing –
in other words, less than 1% of investable assets. In recent years much of the focus has been in less
developed countries, where the need for change and the opportunity to make a difference is greater.
But recently a chorus of voices has suggested that this is a way to solve some of our domestic
problems, especially around education and poverty. The idea, therefore, of being able to invest money
into early-stage socially impactful businesses and make a rate of return as well as a mark on society is
gaining traction and becoming part of the lexicon of investing.
In this nascent sector, the easiest way to find opportunities is to invest in a pooled-asset vehicle such
as a Limited Partnership. The investment manager can then combine investor capital and find suitable
emerging businesses in which to allocate funds. This is the same model as venture-capital funds, but,
unlike that well-established marketplace, impact investing has some challenges. Namely, it is hard to
locate suitable deals (especially overseas) and locate fund managers with the expertise necessary to
be successful in this sector. The Aspen Institute also points out that many would-be social
entrepreneurs complain that they have trouble connecting with impact investors and these investors
are not willing to take the necessary risks.
In short, there is both a human talent and information gap in the market that needs to be closed if this
corner of the investing world is going to succeed.
With this gap comes opportunity, though, and we are being to see the emergence of organizations that
can solve this equation. On the one hand, companies are appearing that have the management talent
who can go into these emerging business and grow the enterprise and prove out the business model.
On the other, as the sector grows in size, new experienced investment managers are coming to the
fore to assist with capital allocation. These trends will take time to converge, but there is significant
momentum building and clearly opportunities are emerging – both domestically and overseas.
How are we doing?
Page 2, ©2015 Advisor Perspectives, Inc. All rights reserved.

3. Skeptics of the asset class suggest that little of the impact-investing market actually matches its
description. In other words, it is difficult to quantify the actual impact. Indeed, some argue that time is
better spent investing in companies that make money so any profits can be given to charity or to start a
business that will benefit customers, employees and society*. But this message misses the bigger
picture trend afoot – namely a desire to do something in the world to make a difference by using the
tools of the free market.
To counter the skeptics and to give greater substance to this area, the Global Impact Investing Network
in partnership with Cambridge Associates, has just launched the Impact Investing Benchmark so that
investors finally have a tool to assess just how successful firms that invest in this arena are doing. The
results to-date show that it is possible to achieve market rates of return, but, not surprisingly,
investment selection is the key driver of success.
As some of the data goes back to 1998, the benchmark also documents growth and begins to bring
legitimacy of the sector. But more importantly, perhaps, the data helps future investors make better
decisions. In turn this forces greater accountability among investment managers. All of which should,
over time, close the human-talent and information gaps.
There is room for improvement. For example, the current data set is limited and in need of expansion
so that accusations of cherry picking can be overcome and more types of investment strategies should
be included. However, this is a valuable addition and signifies the coming of age of impact investing.
Coming to the fore
The emerging prominence of the sector was evident when the G8 (the group of the world’s eight
leading economic powers) embraced impact investing with the formation of the Social Impact
Investment Taskforce. The aim of this initiative was to influence and shape the development of the
social-impact investment market. In other words, there was recognition within the governments of the
world’s eight leading industrialized nations that the forces of impact investing could be used for the
greater good if a proper foundation were build. Spearheaded by the U.K., the final report published in
September 2014 outlined how impact investing was the “invisible hand of the markets” and outlined
how it harnessed entrepreneurship, innovation and capital to power social progress.
Pope Francis added his substantial voice to the movement by stating, “It is urgent that governments
throughout the world commit themselves to developing an international framework capable of
promoting a market of high impact investments and thus to combating an economy which excludes and
discards.”
Finally, the United Nations has entered the arena by integrating impact investing into the U.N.
Sustainability Development Goals (SDG’s). These SDG’s contain 17 goals with 169 targets covering a
broad range of sustainable development issues. These include ending poverty and hunger, improving
health and education, making cities more sustainable, combating climate change and protecting the
oceans and forests. The SDGs are due for final approval at the end of September 2015 and mark the
UN’s focus over the upcoming years.
Page 3, ©2015 Advisor Perspectives, Inc. All rights reserved.

4. Some of the world’s most powerful voices are pushing for the tools of private enterprise to be used to
make a societal difference. Impact investing is being seen as a necessary cog in the allocation of
investment capital.
Catch the wave?
Impact investing is capturing the imagination. It is recognition that private enterprise is emerging as the
best way to solve some of the Earth’s most pressing issues by more effectively managing and
deploying capital. At the macro level, the momentum is building with some of the world’s largest
economies and institutions on board. At the micro level, the foundation is slowly being put in place so
that much greater transparency exists for all investors. Investors in this sector want to understand the
good they are doing as well as their rate of return.
The founders of Google have the financial wherewithal to fund their own “moon shots;” their new
corporate structure will enable them to take high risks without worrying about the vagaries of Wall
Street. For the rest of the investing public, impact investing remains an Alphabet soup, but it will not be
long before clarity emerges and individuals will be able place their own Alpha-bets on making a
difference in the world and reaping a financial return while doing it.
John Appleby is a managing director with CAPTRUST Financial Advisors, a North Carolina
investment advisory firm.
References
*For a more detailed argument see: Is Impact Investing Just Bad Economics by Phil Demuth. Forbes
4/24/2014
The Bottom Line: Investing for Impact on Economic Mobility in the US. By Randall Kempner and Alex
Pan – The Aspen Institute.
When Can Impact Investing Create Real Impact? By Paul Brest and Kelly Born – Stanford Social
Innovation Review Fall 2013.
The Coming of Age for Impact Investing. By Amit Bouri – Stanford Social Innovation Review August 3,
2015.
For a copy of the G8 report of impact investing see www.socialimpactinvestment.org
For a summary of the United Nations Sustainable Development Goals see The Guardian Newspaper
www.theguardian.co.uk September 3, 2015
Other Resources
Page 4, ©2015 Advisor Perspectives, Inc. All rights reserved.

5. www.theGIIN.com
www.andeglobal.org
Page 5, ©2015 Advisor Perspectives, Inc. All rights reserved.