SAN FRANCISCO — It only launched last year, but the The Rise Fund was all over the agenda at last week’s Social Capital Markets conference, which draws investors and entrepreneurs to San Francisco each year to discuss issues at the intersection of money and meaning.
The $2 billion social impact fund is the result of a collaboration between Bill McGlashan, a partner at the private equity firm TPG and co-founder of The Rise Fund; Bono, the musician turned activist and investor; and Jeff Skoll, the first employee and president at eBay whose legacy in philanthropy includes the Skoll Foundation in Palo Alto.
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The Rise Fund invests in seven areas the firm has identified as offering potential for achievable and measurable impact — agriculture and food, education, energy, financial services, health care, technology, and infrastructure — and represents the growing influence of private wealth for public good in global development finance.
There is a $2.5 trillion a year gap in the money needed to finance the United Nations Sustainable Development Goals. This represents just 1 percent of what is in the international capital markets on any given day, meaning the global development community is exploring new ways to engage the private sector in order to solve these problems by 2030. One of the central themes of Social Capital Markets last week was Beyond Aid: Achieving the Sustainable Development Goals. It was the first time in the 10-year history of the SOCAP conference that high-level representatives of the U.N. — including Achim Steiner, administrator of the U.N. Development Programme — joined the conversation on the shift from aid to investment.
From sessions onstage to nonstop meetings at the picnic tables lining the pavement outside the Fort Mason venue in San Francisco, representatives of the Rise Fund; donor agencies from the U.S., U.K., and Canada; nongovernmental organizations; and investors and entrepreneurs from all over the world discussed how the public and private sector can come together to support the SDGs.
The international impact investing company KOIS Invest announced last week that it will raise up to $30 million for an impact bond to support organizations that focus on employment and entrepreneurship for Syrian refugees in Jordan, Turkey, and Lebanon. Convergence, a blended finance platform that works with investors to execute these transactions in emerging markets, is awarding a design funding grant to KOIS Invest to structure and launch the impact bond. The capital will be distributed to two to six organizations over the course of two or three years. If those organizations achieve certain outcomes, investors will get their own capital back, along with a return from other outcome funders such as foundations and aid agencies.
“Blended capital is the use of philanthropic or official aid money inside a financial structure that has the effect of pulling private investment into the same structure where it normally wouldn’t have gone because risk is too high, the rewards aren’t calibrated for the risks, or so on,” said Joan Larrea, CEO of Convergence, who previously led the U.S. Overseas Private Investment Corporation’s efforts to partner with philanthropic and private investors.
Blended capital is one way of increasing the amount of private capital going into emerging markets in service of the SDGs. Private capital doesn’t just flow into emerging markets; it goes into investments that make sense for it, Larrea said. By creating this additional set of structures to pull in the private sector — making issues including refugee employment an investable proposition — blended capital is a key part of the path from raising development finance from billions to trillions.
Larrea moderated a session at SOCAP called “Mind the Gap: How to achieve the SDGs with Blended Finance.” Panelists looked at blended finance deals across a range of sectors to explore what works and how to scale up these approaches, as discussed in a recent report on the state of blended finance.
Agnes Dasewicz, director at the office of private capital and microenterprise at the U.S. Agency for International Development, talked about a new INVEST platform to mobilize private investment for development. INVEST leverages blended finance as a way to combine government resources — such as grants, technical assistance, and guarantees — with private capital to support global development. Information about the platform will be available online later this month, she told Devex.
Understanding the role of private capital
Another session evaluating how the development community is pivoting to address investor priorities evaluated strategies such as innovative credit guarantees that donors can use to raise awareness of investment opportunities, to lower transaction costs, and to mitigate investment risks.
Traditionally, there are high barriers to entry for private sector institutions in understanding and engaging with USAID and other donors, said Jake Cusack, managing partner of CrossBoundary, a frontier market investment advisory firm. His firm partnered with USAID on Beyond the Grid, an initiative of Power Africa, but he noted challenges in the process. The key moving forward is for donors to make it easier for partners to adapt plans on a shorter time horizon, say two or three month interventions, rather than following five-year plans, Cusack added.
Still, while all the panelists agreed that development dollars cannot accomplish development goals on their own, and that blended finance can help in some markets where grants can be distortive, there remains a critical role for aid.
“Not everything is appropriate for blended capital,” Cusack said. “Not every road should be a toll road.”
A mainstage session was even designed to call attention to the fact that grant capital still plays an important role, even as impact investing begins to, depending who you ask, realize its promise of achieving impact and profits.
“A lot of what we’ve been talking about these past few days is about investment and private investment, and frankly we’re getting a little lonely,” said Rob Schneider, who leads the Partnering to Accelerate Entrepreneurship Initiative, or PACE, at USAID. “What’s the role for, or is there a role for, donors and donor capital?”
Learning the language
One of Schneider’s panelists was Chris Jurgens, a director on the impact investing team at the Silicon Valley-based venture philanthropy firm Omidyar Network, who was previously director of global partnerships at USAID’s Global Development Lab. Omidyar Network provides both grants and investments, but has a bias for commercial investment and market rate returns, he said. It considers what incremental impact it is buying by taking concessional returns, either from direct impact or market impact.
For example, with its investment in d.light, Omidyar Network expected below market returns, but anticipated that the organization could have market-level impact and catalyze the growth of an entire sector. It also makes grants in sectors where nonprofit innovation is critical, such as policy and advocacy, research, and data — or helping companies understand their customers — and industry-enabling investments around enterprises, Jurgens said.
One point Alexis Bonnell, head of applied innovation at USAID, brought up at SOCAP was the need to take the side pots of money USAID uses for innovation and private sector engagement and turn them into larger pots of money that become part of the way the agency delivers its development.
In a session called Applying Exponential Technologies to Achieve Zero Hunger, she talked about how USAID has worked to mainstream innovation, shifting some resources away from discovery and initial funding of innovations and putting it toward applied innovation. The key is to convince people internally to embrace technology innovation by beginning with two questions: how does it make their lives easier and how does it make them look good? It is important to understand that at the end of the day technology transfer is about people, she said, and anyone trying to mainstream innovation needs to tackle the barriers that have to do with fear and bandwidth by making sure that adopting technology makes their lives easier or their work more effective.
One simple shift that Tami Kesselman, head of strategic partnerships at the UNDP SDG Finance Initiative, suggested is that NGOs and others in the global development sector shift from a funding to a financing mindset.
Larrea added that the global development community needs to learn how to speak the language of private sector professionals in order to partner to achieve the SDGs.
“They’re not thinking about beneficiaries or development,” she said. “There are these moments where the parties talk past each other because they’re speaking different languages.”
She said her reaction to questions of how to engage the private sector in development is that the private sector has a fiduciary duty to do what makes financial sense, and she often has to convince global development professionals that it is okay for the private sector to make returns.
“If they weren’t investing in this difficult market, in this difficult sector, they could be back at the U.S. stock market putting that next dollar into an IBM share,” she said.
Meanwhile, the growing number of socially responsible investors who are looking to the SDGs as a framework for impact are starting to learn the language of development, too.
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