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Opinion

Taking impact public

Thomas Venon, Founding Director, Eighteen East Capital
March 30, 2017, midnight
806

Word count: 730

Investing for impact in Africa has long been the preserve of development finance institutions (DFIs), foundations and ultra-high-net-worth individuals. If the United Nations’ Sustainable Development Goals (SDGs) are to be achieved, it is crucial that additional sources of capital be brought to bear, and providing mechanisms through which all categories of investors are able to invest for impact is key to unlocking private capital.  

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Investing for impact in Africa has long been the preserve of development finance institutions (DFIs), foundations and ultra-high-net-worth individuals. If the United Nations’ Sustainable Development Goals (SDGs) are to be achieved, it is crucial that additional sources of capital be brought to bear, and providing mechanisms through which all categories of investors are able to invest for impact is key to unlocking private capital.  

Whilst fiduciary parameters and an entrenched resistance to change mean most institutional investors will be slow to mobilize, individual investors have, as demonstrated by the success of SRI funds, shown their appetite for sustainable investment opportunities. 

To accommodate the need for the provision of long term capital, impact investing in the context of developing countries is however typically carried out through private equity or private debt vehicles, structured as limited partnerships.  

Associated with a cumbersome commitment, cash call and distribution cycle, high investment minimums, no organized secondary market and a too often light touch regulatory environment, the limited partnership structure is not a good fit for the requirements of all but the wealthiest of individual investors, nor is it one for those of many of their institutional counterparts. 

Access to impact investing for individual investors has thus largely been limited to fixed income based opportunities with shorter durations and higher liquidity. Whilst clearly a step in the right direction, this can only scratch the surface of what is needed to progress towards the SDGs. 

The need to provide regulated, liquid access to illiquid assets is not exactly a new problem. In fact investors came up with a solution centuries ago. They called it the stock exchange. 

Investment trusts and other forms of stock exchange listed and traded investment companies have been around since the late 19th century, allowing investors to reconcile the provision of much needed long term capital with their own short term liquidity requirements. The structure has been used more recently to provide liquid access to private equity, infrastructure, real estate and renewable energy assets. 

The case for Impact Investment Trust 

Leaving the reinventing of the wheel to those better qualified for the job, Eighteen East Capital, with financial support from the Swiss government (SECO), and the British government has been working towards the IPO on the London Stock Exchange (LSE) of Impact Investment Trust PLC, an investment company offering exposure to a portfolio of funds investing for impact in developing countries. Initial structuring and test marketing costs were in addition funded by UK aid from the British government (under the DFID Impact Programme).  

Impact Investment Trust PLC’s shares will trade like those of any other company listed on the LSE, making its portfolio of high impact SMEs accessible to all. Investors will therefore be able to make and exit investments on a daily basis, simply by buying or selling shares through their bank or their broker. Impact Investment Trust PLC will be subject to the same level of regulation and supervision as all companies trading on the LSE. 

Impact Investment Trust PLC’s impact mission is built into its founding documents, and will be enforced by an independent board led by Jean-Michel Severino, CEO of I&P, formerly director general of the French development agency AFD, and currently a board member of Danone and Orange. Randall Kempner, executive director of ANDE and Lisa Hall, MD of impact investing at Anthos and former CEO of the Calvert Foundation, will join him as board directors. 

Obviam AG, the investment adviser to the Swiss DFI SIFEM, has been retained to help the board build Impact Investment Trust PLC’s portfolio, bringing a wealth of experience and dedicated resources unique to the DFI community.  

Impact Investment Trust PLC will offer a unique opportunity to invest in high impact sector SMEs in developing countries through the services of one of the few institutions with a long, successful track record of doing so, while enjoying the liquidity provided by one the world’s premier stock exchanges, and the protection of the highest level of governance and regulation. 

The IPO of Impact Investment Trust PLC will hopefully open the gates to the launch of other such vehicles, be they competing or complementary. Eighteen East advocates a full ‘open source’ stance, and stands ready to assist other impact investors in building a wider impact investing sector on the London Stock Exchange. 

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