Making Impact Investing Easier for Advisors and their Clients


Financial Advisor Magazine, By Jerilyn Klein Bier

August 02, 2012



When Andy Lower joined the Eleos Foundation as executive director in December 2008, the small, private foundation had a balanced portfolio with Vanguard and was making grants to help eradicate extreme poverty in the developing world. But it was looking to take things up a notch.


Lower, a former advisor with a leading philanthropic consulting firm, started to explore how the foundation could make a greater social and financial impact. “We have a moral imperative to make sure our assets are in line with our mission,” he says.


Santa Barbara, Calif.-based Eleos, which has a $6 million endowment, now relies on in-house research to make direct “impact first” investments in early-stage social enterprises. These investments seek to optimize social or environmental returns while yielding some financial return.


One of Eleos’s investments is Sanergy, a startup that’s bringing clean toilets to slums in Kenya through a franchise model. It’s improving sanitary conditions, creating jobs and also generating revenues through its waste-to-fertilizer operations.


For its “financial first” investments, or those which seek to optimize financial returns while yielding some social or environmental good, Lower says Eleos consults with Sonen Capital LLC, a San Francisco investment management firm specializing in social and environmental impact.


Sonen brought Lower’s foundation into deals with the AWJ Global Sustainable Fund, the Minlam Microfinance Fund and the RSF Social Investment Fund, as well as in notes that invest in Root Capital, a nonprofit social investment fund. Some deals are direct investments; others are as part of a pool of investors.

“Working with Sonen helps us swim further downstream and play with bigger fish,” says Lower, adding that it provides Eleos with financial expertise, enables it to partake in some investments it wouldn’t be large enough to do solo, and helps it balance its portfolio across different asset classes.

Listening To Clients

Impact investing is gaining attention even among mainstream investors. Nearly one-quarter (23%) of the 1,065 financial advisors surveyed for the Calvert Foundation’s recent Gateways for Impact report responded that “impact focused” private debt and equity options are appropriate for many or all of their clients. Like Eleos, more advisors, foundations and family offices are turning to specialists such as Sonen to help them identify opportunities, conduct due diligence and monitor impact.


Dismissing or discouraging a client’s interest in impact investing could jeopardize the client-advisor relationship, cautions Raúl Pomares, a senior managing director with Sonen and co-author of Solutions for Impact Investors: From Strategy to Implementation, a book published in 2009 by Rockefeller Philanthropy Advisors.

“If you’re unwilling to talk to a client, it’s highly likely someone else will,” Pomares says.

As his longtime client, the KL Felicitas Foundation, explains on its Web site, “We started to articulate what we were passionate about and if our advisors could not deliver, we moved on.” The 12-year-old family foundation plans to have more than 90% of its assets in impact investments by 2013.


Sonen, which opened its doors last September and has $125 million under management, has been busy developing investment solutions aimed at making the highly-fragmented impact investing market more accessible to investors through their intermediaries including independent advisors, smaller trust companies and regional banks.

“We were once those people,” says Pomares, who integrated impact investing into portfolios when he worked at Springcreek Advisors and Guggenheim Investment Advisors.

Julia Sze, a managing director at Sonen, put impact investing into practice at Wells Fargo’s Family Wealth Group where she managed large client portfolios. Pomares, Sze and the rest of the Sonen team sport a combined 100-plus years of investment management experience and more than 50 years of impact industry leadership.


Sonen provides a global investment solution for impact investors in high-growth frontier markets. This strategy focuses on investments in such areas as financial services, health care, sustainable agriculture and community clean energy.


Unlike with grants and philanthropy, capital helps provide true sustainable economic development for people living in poverty at the bottom of the pyramid, Pomares says. Sonen’s multi-manager, multi-themed, multi-asset class emphasis seeks to minimize risk and maximize financial returns with measureable impact.

Customized Managed Account Platform

What kind of returns can impact investments potentially generate? For its part, Sonen won’t discuss performance figures and targets. But to paint some kind of picture, JP Morgan’s December 2011 Insight into the Impact Investment Market report stated the average baseline expected return is 18% in emerging market equity and 9% in emerging market corporate debt.


Sonen is biased towards investments where the managers have in-country representation. Members of its team have visited many of these enterprises including farms in South Africa, microfinance operations in Peru, and telecom, financial services and clean energy projects in Botswana.


Sonen integrates Impact Reporting and Investment Standards (IRIS) into its assessments. It enlists a third-party firm to evaluate the accounting, custody, legal and governance practices of its underlying investments.


Sonen also plans to introduce a customized managed account platform later this year that will enable financial advisors and other intermediaries to offer more liquid impact investments to their clients. They’ll be able to choose from a variety of asset class offerings including cash-management options; fixed income instruments targeting low income areas or themes such as energy efficiency, water and sanitation; and global and U.S. public equities.

“When people are connected or engaged in a theme, their ability to become engaged in a portfolio dramatically increases—even if it’s just a small portion of their assets,” Sze says. “Impact investing is also a good way to engage in conversations across generations.”

Looking for more information? Impact investors seem eager to share their knowledge. The KL Felicitas Foundation web site includes many resources and tools, including an Impact Investment Evaluator Primer developed by Pomares to help track due diligence efforts.


Lower says the Eleos Foundation, which conducts educational events and invites co-investors to participate in its deals through its funds managed by its for-profit subsidiary, Eleo Investment Management LLC, is trying to develop a model that other foundations can follow.


See full article at Financial Advisor Magazine.

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