24 Jun Impact Investing Strategies: January 2015 Happy Hour with Rodolfo Fracassi of Main Street Partners
Finance Matters’ first happy hour of 2015 welcomed Rodolfo Fracassi, Partner Director of MainStreet Partners, for a fruitful discussion of impact investing and the various challenges behind the topic. We started the year back at the House of St. Barnabas, where Rodolfo began the discussion by providing some insight into his background and his first experiences in the impact investing sphere.
As a way of background, MainStreet Partners is an independent advisory company which was created in 2008, with an aim to provide capital to scalable businesses, combining financial returns and a positive impact on society and the environment. The company provides institutional investors and private banks with custom solutions to allocate capital within the impact investing sphere, all the while reaching a balanced mix of social, environmental and financial returns. Since its’ inception, the company created a large database of investing opportunities within impact investing, ranging from Equities, Fixed Income and Funds with a specialisation in emerging markets.
The discussion was jump started by a member of the group with a question targeted at the understanding of the main distribution channels utilised by firms as such. Rodolfo explained that products were generally sold through the traditional route of private banks, explaining that it was the most effective way to directly involve retail investors. The distribution route generally includes high transaction costs in reaching this type of investor, thus creating a potential barrier to entry in the field. Building on this, some members of the group discussed the possibilities to directly targeting retail investors, although this would be more challenging as awareness of impact investing is still growing.
Following this, the discussion narrowed on the impact of government incentives in the development of impact investing organisations. The group was interested in understanding the different incentives schemes, if any, that governments had implemented in order to promote the development of such products. This narrowed specifically to tax incentives, in which Rodolfo explained that an increased role of governments in this respect would greatly help the development of the sector, but generally this was lacking in the present day.
On a reverse angle, he also underlined the risks in undertaking a project backed by the government, explaining that a highly subsidised sector could present high risks if the government were to back out of the deal, taking as a stark example the case of the education sector in South America. More specifically, he explained that in-depth research was of utmost important in sourcing deals, as finding high quality projects has proven to be difficult, from the geopolitical situation of the hosting countries to the bureaucracies present at all levels of the deal structures.
The group also touched upon the controversial topic of measuring the social impact of such investments, as well as the metrics used in measuring the efficiency in results obtained. Rodolfo explained that this was one of the industry’s most prominent challenges, and that there were multiple ways in measuring the social impact, yet there were underlying challenges in providing an accurate and precise measurement of the final result. He continued in explaining that whilst different methods were utilised, the measurement practices posed a challenge in the development of the impact investing industry. He then built on a notion of simplicity, and advised that the best ways to measure the social impact were to keep measurement practices as simple as possible.
The discussion was dominated by some very interesting questions, and ended with Rodolfo explaining that whilst interest in impact investing and social finance was growing, there is also an even stronger potential for growth. He advised that allowing the industry to reach it’s full potential would come from finance professionals and more generally those interested in the field, from minor proactiveness such as spreading the word, to larger participation such as proposing related strategies in the professional sphere.