I'm Not an Impact Investor, or Am I?

Panel Composition and Assets:

• The panel comprises representatives from four major institutions managing a combined $400 billion in assets under management:
  • Sean Wishmeyer: CIO, Margaret A. Cargill Philanthropies (Private foundation).
  • Janet Cowell: Treasurer, North Carolina State Treasurer (Public pension).
  • Sharon Hendricks: Vice Chair, CalSTRS Board (Public pension).
  • Bill Lee: CIO/VP, Kaiser Foundation and Pension Investments.

Terminology and Internal Framing:

• Cargill Philanthropies uses the term "mission investing" to avoid confusion and focuses on thematic goals rather than geography.
  • Prioritizes illiquid assets (private equity, venture, real assets) over liquid screens to avoid long-term "stranded" investments.
• North Carolina adopts "long-term investing" as the primary term to maintain political neutrality in a state where "sustainable" and "social" carry negative connotations.
• CalSTRS utilizes "sustainable investing" to denote the long-term viability of the fund over a 102-year horizon, focusing on risk mitigation rather than niche labeling.
• Kaiser frames investments through a dual lens of fiduciary duty and health-themed support for healthy communities and environments.

Financial Performance and Returns:

• North Carolina's "NC Nexus" program (in-state investment) achieved a 20% IRR across 21 companies over five years.
  • The program tracked job creation, growing from 5,800 jobs at inception to 6,200 jobs.
• Cargill Philanthropies has not experienced return sub-optimization in early-stage venture and direct investments over the last three years.
• Kaiser reports potential for mid-double-digit returns on solar infrastructure deals, though they note a historical "burn" from early solar investments 20 years ago when costs were higher.
• CalSTRS maintains an assumed rate of return of 7.5%, viewing sustainable investing as a method to meet this target while mitigating long-term risks like climate change.

Operational Challenges and Risks:

• Data and Metrics: A significant gap exists in standardized metrics for ESG factors; Swedish and Dutch funds are cited as leaders in big data carbon footprint tracking, while U.S. public funds struggle with aggregation.
• Divestment vs. Engagement: CalSTRS and NC face pressure for divestment bills (e.g., from Iran or thermal coal), prompting a strategic shift toward engagement policies to retain voting power rather than exiting positions.
• Manager Capacity: Institutions face a shortage of managers with sophisticated long-term strategies who are not "hot" or overpriced; active investors are often charging premium fees.
• Administrative Burden: Monitoring complex portfolios for specific exclusions (e.g., payday lending) requires significant resources, sometimes necessitating third-party partnerships or local credit unions for monitoring.

Product Evolution and Strategy:

• Partnership Models: Kaiser and others emphasize co-investing with private equity firms and other sponsors to share due diligence risks and costs.
• Debt Instruments: Discussion highlights the potential for revolving credit funds and green bonds to complement grant-making, particularly for community organizations facing lump-sum reimbursement issues.
• Customization: Cargill seeks idiosyncratic, custom products for niche themes (e.g., fisheries) rather than generic funds, leveraging its smaller size ($7 billion) to deploy capital in areas too small for larger pools.

Board Governance and Fiduciary Duty:

• Benchmarking: Panelists generally reject "special" benchmarks for impact investments, preferring to evaluate opportunities against standard asset class benchmarks to avoid siloing.
• Trustee Debates: CalSTRS boardrooms host vigorous debates regarding the definition of fiduciary duty, balancing the mandate to "make money" with the need to mitigate environmental and social risks.
• Manager Vetting: A major hurdle is the lack of long track records for new impact managers; institutions are often forced to rely on the principals' previous track records (e.g., hedge funds) and apply rigorous bootstrapping principles.

Forward-Looking Statements and Next Steps:

• Standardization: Janet Cowell and Sharon Hendricks call for standardized metrics and accepted terms to allow for easier portfolio aggregation.
• Education: A primary goal is continuing to educate trustees on the long-term risk mitigation value of sustainability over the next 20 to 30 years.
• Operational Integration: Bill Lee proposes developing checklists for ESG criteria to integrate data flow directly into daily investment research operations.
• Market Growth: The panel anticipates continued growth in private equity and infrastructure deals, though they caution against "hype" and emphasize the need for commercial viability over "low-hanging fruit" in public equity.