Roundtable, Panel
Impact Investing in Israel Roundtable
Milken InstituteLorin Fife, Alan Hoffmann, Carl Kaplan, Yaron Neudorfer, Izzy Tapoohi, Davida Lachman-Messer, Shari Birenbach
- Social impact investing is projected to evolve into the "next venture capital" or the "venture capital of the coming decade" as successes accumulate and trigger a major shift in the operational mindset of conservative institutional investors, foundations, and endowments.
- Approximately $300 billion is currently held in global Jewish endowments and foundations, with potential for an additional $3 billion to enter the ecosystem if 1 percent of the typical 5 percent annual distribution is reallocated, a move supported by the expectation that new philanthropists will prioritize investment vehicles that generate multiple rounds of social return over traditional grant-making.
- Institutional frameworks are expected to transition from pure grantmaking to utilizing a portion of the 95 percent investment equity for social vehicles, aligning with the prudent investor rule and addressing donor-advised funds' hesitation to create Program-Related Investments (PRIs) that might allow 20 percent of distributions to be directed toward social investment while maintaining lower returns (6-6.5 percent) on the remainder.
- The Israeli government is anticipated to build capabilities to evaluate and quantify savings for large-scale social projects, specifically targeting high incarceration rates among young Ethiopian immigrants in the army, alongside the development of mechanisms to demonstrate budget savings to investors.
- Public-private investment models are expected to lead to the creation of Israel's first government social investing fund following a recent government resolution, with further government adoption of small business sector models for intermediate and export finance programs.
- Specific financial leverage models are being pursued, including a plan for Kiva Israel to secure a loan limit of up to $1 million, a strategy to leverage a $2 million net loan six-to-seven-to-one via banks for working capital, and an expectation of a two-to-one leverage for a joint Bedouin and Arab women's program where the government covers half the costs.
- The social investment bond ecosystem aims to replicate the U.K. model in the U.S., where a recidivism project involving Goldman Sachs is planned, while Israel intends to prioritize a bond for Haredim employment followed by projects addressing diabetes and Arab employment, with a potential fourth project on recidivism, amidst a global landscape of approximately 30 active projects.
- International fundraising via Israel bonds is forecasted to reach between $500 million and $750 million in Europe, South America, and Canada, with future plans to develop earmark bonds and utilize a 5 percent tax break for social impact industries that could double or triple investment volume.
- Infrastructure development includes plans to supply capital flow to social impact bonds or funds of funds via a social investment bank charter, the integration of the Milken Institute into Israel bond investments, and the establishment of measurement systems for social gain to satisfy investor demands for proof of a double bottom line.
- Community-based initiatives are expected to employ crowdfunding-like approaches to aggregate small donor-directed funds, while the Center for Designed Philanthropy at the L.A. Jewish Community Foundation aims to facilitate collaborative packaging of investors into loan vehicles.
- A significant risk and prerequisite for scaling involves the necessity of establishing international, national, or sectoral measurement systems to provide proof of social gain, as the conservative world of foundations and endowments currently requires a major conceptual shift before fully embracing these new financial instruments.