World in the hands of capital markets
In the second report from Monaco, Henry Palmer looks in on a meeting hosted by Total Impact Advisors and Monaco Private Equity & Venture Capital Association where delegates were warned that attempts to tackle the big issues are doomed to failure without a huge injection of investment from modern capital markets.
Speaking at an event designed to woo private equity firms in Monaco into the world of impact investing, an influential panel agreed that governments and philanthropic organisations simply did not have enough capital to invest in these issues.
Arthur Wood, a founding partner at Total Impact Advisors, elaborated on his argument in his latest column for Pioneers Post, and cited figures that suggested tackling climate change would cost in the realm of $2 to $3tn and sanitation a further $650bn.
‘The current crisis is structural,’ he said. ‘There is no more money coming from government, while the private sector solution so far has been to set up foundations. But when you realise the Gates Foundation’s total give is what the Pentagon spends in 36 hours and total American endowments in foundations amounts to roughly what the Pentagon spends in nine months, then you start to see the problem about the paucity of capital.
Meanwhile, fellow panellist Cornelius Pietzner, CEO of Alterra Impact Finance, said: ‘The philanthropic cap is limited in potential impact and simply the amount of dollars available. Real horsepower needs to come from the capital markets at this point in history. We’re at an interesting point in history where people are waking up and are interested in what their capital is doing, how it’s working and what effect it's having.’
However, he added a word of caution. ‘Having said that, is impact investing an exotic niche that will last and grow and become more mainstream or will it disappear and remain the habitat of a few strange institutions and individuals?’
Vivina Berla, a senior partner and managing director at Sarona Asset Management, said her own career had demonstrated the financial services industry’s shortcomings. ‘I spent 20 years in what I now call the darkside: the traditional investment market where I put capital to work for the pure and simple purpose of making money,’ she said.
‘When I joined the finance industry I was still thinking it was an important part of how to build and grow economies and the world, but [the credit crunch in] 2008 demonstrated to all of us that the financial system as we know it, which is actually flushed with money, is incapable of doing things that actually have an ethical or moral compass.’
Wood added: ‘When you juxtapose the problems we have with the resources available to tackle them then we’re going to have to think creatively if we going to solve them, let alone dent them. If we’re going to solve these problems, it has to be collaborative. We’re going to have to blend private and government capital. This is how we’ll solve these problems.’