Impact investing is an emerging field that has taken top business schools by storm. Doing well by doing good isn't a new concept. But unlike traditional socially responsible investing, which has sometimes received flak for leading to "greenwashing"—disguising ordinary profit-seeking behavior as socially or environmentally conscious—the new genre of impact investing channels large-scale private capital for social benefit, according to a report by J.P. Morgan and the Rockefeller Foundation.
To harness this new asset class, Cornell University's Johnson Graduate School of Management and the Kellogg School of Management at Northwestern University recently hosted the first International Impact Investing Challenge, with more than $40,000 in prizes awarded to the winning teams. This invitation-only pitch competition asked students to design investment vehicles that create sustainable impact and are large enough to attract institutional investors. Twelve M.B.A. programs were invited to send one team to represent their program at a final competition at the J.P. Morgan headquarters in New York in April.
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Students pitched their investment ideas to a panel of experienced investors and senior officers who currently manage family foundations, pension funds, and university endowments. The team from Kellogg won first place for its proposal: The Grain Fund Depot, a real estate investment trust (REIT) that would focus on building grain storage facilities and renting that space to small farmers in India. Winners Sachpreet Chandhoke and Puneet Gupta were awarded $12,000 and admission to the 2011 Milken Institute Global Conference, held recently in Los Angeles.
"Impact investing is important because it demonstrates the possibility of providing investors with above-market returns while also generating tremendous social value," says Gupta. "The two are not at odds with each other."
David Chen, an adjunct professor at Kellogg, and managing principal of event sponsor Equilibrium Capital Group, says, "M.B.A. students bring remarkable energy, insight, and innovation to this field, and it's our hope that involvement in an event like this will help students find ways to create the next generation of impact investing."
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In an interview with AOL's Daily Finance, Mark Milstein, director of the Center for Sustainable Global Enterprise at the Johnson School, says the recent financial crisis showed the weaknesses of traditional investment vehicles and underscored the importance of the long-term strategies that are central to impact investing. The nonprofit Global Impact Investing Network predicts this sector will grow to $500 billion by 2014.
"In the bad economy, greenwashing went out the window," Milstein says. "But long-term investments have continued to grow and have value."
The Kellogg School of Management will partner with the Chicago Booth School of Business in June to bring national experts in the field to the 2011 Impact Investing Summit in Chicago. This summit supports current efforts of the U.S. Secretary of State's Global Partnership Initiative (GPI). In 2010, GPI began the "20ii—Investing for Impact" initiative to leverage the assets of corporations and investors to achieve social and environmental impact in underserved markets and help achieve the U.S. government's foreign policy objectives. For instance, the events of the day will be capped off by three presentations from Midwest ventures that highlight the opportunity for impact investments there.
"The Midwest is generating novel for-profit ventures that are creating both social and financial returns but require growth capital," says Linda Darragh, clinical professor and director of entrepreneurship programs for the Polsky Center for Entrepreneurship at Chicago Booth. "But we can no longer rely on philanthropy alone. Impact investments are the fuel needed to grow this new class of ventures that will better our society and environment."