Fireside Chat, Panel
The Sustainable Investing Challenge: Meet the Winning Team; See the Plan
Milken InstituteDavid Chen, Ashwin Halgeri, Erica Hoeveler, Chris Shaw, Christopher Krebs, Kunal Aggarwal
- The Sustainable Investment Challenge will expand globally to include schools and engage thousands of graduate students, while a group of 25 global educators convenes at Kellogg in June to discuss impact investing frameworks and share curriculum resources.
- The program anticipates a sectoral shift where education moves from a fringe to a mainstream topic, integrating sustainability into core portfolios for pension plans, sovereign wealth funds, and endowments.
- Participants plan a one-year validation phase involving trips and ground research, followed by full-scale operations starting in June 2018 if the phase is successful.
- The operational timeline includes spending the first year at Kellogg learning the education space, followed by developing a startup in the second year or a one-year program in Brazil.
- Key personnel recruitment targets include individuals with specific expertise in navigating the Indian education space and understanding its regulatory environment.
- Initial setup costs are estimated at $500,000 to reach a self-sustaining state by year three, though this figure may change.
- The Edu India Fund 1 aims to provide expansion capital to 1,000 schools in Uttar Pradesh, India, with expectations of generating 7% real returns aligned with long-term Indian debt benchmarks.
- The fund is projected to create 8,000 new seats, register 250 new schools, prevent 80,000 student dropouts, and provide 200,000 new potential clients for partner Microfinance Institutions (MFIs).
- Investors are expected to begin receiving financial returns after year five, with portfolio schools contributing to repayments by year three.
- Legal and setup requirements to establish the company in India are expected to take up to one year.
- The portfolio target includes 360 schools by the end of the second year.
- Future funds plan to expand operations to other Indian states and subsequently to other emerging markets facing similar educational challenges.
- The funding strategy involves initially targeting impact investors before moving to family offices for additional capital.
- The financial model anticipates a 10% annual default rate due to volatile revenues, which is double the rate of other lenders, with a critical threshold set at 15%.
- Diversification across five or six states is intended to mitigate black swan event risks.
- Expansion strategies must account for significant regulatory and profile differences between rural and urban Indian areas.
- Concerns exist regarding an imbalance in the market between impact investing talent and actual entrepreneurship skills.
- The Kellogg program offers specific courses and pathways for entrepreneurship, which served as a primary motivation for the team's selection.
- Team members believe impact investing is hitting inflection points and moving from dwelling to taking off, with enthusiasm expected to spread from students to administrative staff.
- Material risks include the potential for setup costs to fluctuate, the success of the validation phase determining operational launch, and default rates exceeding the 15% limit which would negatively impact the model.