Investing in Impact Infrastructure
Next week, I will be speaking at the Nexus Global Youth Summit about financing “projects” in the impact space. I think the conference organizer is interested in the work we’ve done to design financings that provide liquidity to investors after the completion of defined milestones, as opposed to relying on an “exit” for liquidity. One example is the financing of a single housing development outside of Nairobi. Another is a deal in progress that allows the investors to cash out of an operating company after 5 years through a redemption mechanism funded by profits. I, however, immediately thought of project finance as I understood it during my big firm days: financing large-scale infrastructure projects that are intended to improve the flow of critical resources in national economies.
It is this kind of infrastructure – “projects” writ large – that got me thinking about the level of investment in the building blocks of a global impact investing economy. While we often talk about building an ecosystem for a different kind of investing, I rarely see ecosystem development projects funded. What are the power, telecommunications, and transportation systems of impact investing? Is it possible to take a market-based approach to infrastructure-level investments in the impact economy?
I can think of some attempts – The Social Stock Exchange, Mission Markets, ImpactAssets – but surely there is much more that we could do. For a few years now, we and others have been talking about the potential of impact business development companies (BDCs) to provide long term capital for worthwhile ventures while at the same time providing a liquid publicly tradable security for investors. And I don’t know how Eupraxia is doing in raising money for their fund, but I know a team with impressive private equity and BDC industry experience who cannot raise the seed capital that they need for an impact BDC.
As another example, almost everyone I talk to in the international impact investing field seems to think that the lack of investable deals is one of the biggest obstacles to the growth of global impact investing. All of the same people seem to agree that the intervention of the right technical advisors can quickly shift a deal from not investable to investable. I’ve seen this happen twice in the last twelve months in E. Africa with the excellent assistance of Open Capital Advisors and relatively small capital advances by interested investors. Open Capital is a profitable company, which makes me think that the lack of “investable” deals is an infrastructure problem that could be susceptible to a market based solution.
According to Nexus’ website, its membership includes hundreds of the world’s most influential families, and it is seeking to provide leadership to a new generation of high net worth families who will control $40 trillion. So, here’s what I’m thinking. I’ll ask the participants at the conference to organize a modest $100 million to invest in promising impact infrastructure projects that have the potential to both meaningfully increase the flow of impact capital and return at least 3% to the fund investors.