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© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 1 1
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only
Why I Am an Integral Investor
Dr. Mariana Bozesan
Club of Rome, Intl. Full Member President, AQAL InvesDng Partner, AQAL Capital
May 13th, 2013
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
Lehman, Fukushima, Madoff, Libor, Climate Change, Debt Crisis…
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
… lead to wealth owners’ sinking confidence in insDtuDonal
investors*
*Source: BCG Report, Regaining Lost Ground: Resurgent markets and new opportuni5es. Becerra et al.2010.
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
>= 10% of High Net-‐Worth Individuals want sustainability in both financial terms and impact, but cannot get it
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
…. because innovaDve financial products that can fulfill our needs are
missing at large scale
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 6
Thus, many HNWI are bypassing insDtuDons • Seeking alternaDves to tradiDonal fund products, o\en sobered by weaker than expected past product performance
• Wealth owners are self-‐organizing: – AVIVA Corporate Sustainability CoaliDon ($2 trillion) – InternaDonal Integrated ReporDng Commibee (IIRC) – InternaDonal Stock Exchange IniDaDve – Sustainable Capitalism Manifesto – Al Gore – The Giving Pledge, GIIN, incl. self-‐organizing family offices, TONIIC, PYMWYMIC, AQAL InvesDng, etc.
• Impact InvesDng is o\en missed by insDtuDonal investors (only 5% use it) vs. 10% of HNWI*
*Source: J. P. Morgan & GIIN Report: Insight into the Impact Investment Market. December 14, 2011
Market drivers
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 7
TradiDonal invesDng is challenged*
7
Market drivers
• Financial crisis lead to fear and uncertainty – Falling revenue and margins – Massive capital migraDon – Frustrated wealth owners losing trust in their asset managers – AlternaDve and customized invesDng are on the rise
• TradiDonal invesDng o\en focused on short-‐term profit maximizaDon at the expense of long-‐term health of global community, culture, environment, ethics, and overall human happiness
• TradiDonal investment metrics o\en missed sustainable, Dme-‐based businesses and responsible investment opportuniDes
• Many tradiDonal asset managers failed to develop a core competency in alternaDve invesDng opportuniDes including impact invesDng (SRI/RI/ESG)
• The Venture Capital model is “broken”* Profit
TRADITIONAL INVESTING Profit Metrics
e.g.
WALL STREET BERKSHIRE-‐HATHAWAY
KLEINER PERKINS SEQUOIA CAPITAL
*Source: Mulcahy, D. & Weeks, B. & Bradley, H. S., (2012, May). We have met the enemy …. And he is us: Lessons learned from twenty years of the Kauffman Founda5on’s investments in venture capital funds and the triumph of hope over experience. Kauffman FoundaDon Research
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
Impact InvesDng is growing but is fragmented
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 9
Impact InvesDng is fragmented Two types of Investors* • Financial (Profit) First Investors
– Pursue the opDmizaDon of financial returns before having an impact floor
– Investors “are not willing to accept lower than market returns as a cost to opDmizing social or environmental goods, although they sDll make a posiDve impact”
• Impact (People/Planet) First Investors – Seek to opDmize social and environmental impact with a financial floor
– For greater impact, investors are willing to accept lower than market financial returns.
IMPACT INVESTING
Sustainability Metrics: ESG
Triple BoMom Line
Profit
People
Planet
e.g. GRAMEEN BANK TRIODOS BANK
GLS BANK BANK SARASIN
Market drivers
*DefiniDon a\er (Eurosif, 2010, p. 7)
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 10
European Impact InvesDng in 2009
*Source: EUROSIF SRI Survey 2010
Impact InvesDng
13
23
33
89
242
242
306
312
396
411
1,043
1,851
Germany
Switzerland
Spain
Finland
Belgium
Denmark
Sweden
Italy
The Netherlands
Norway
UK
France
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000
European Impact InvesDng Assets in 2009 in Billion Euros (Source: Eurosif SRI Survey 2010)
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 11
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 12
Global Sustainable InvesDng (SRI/RI) is growing* • Global Sustainable Investments using some kind of ESG criteria reached US$ 13.6 trillion (=21.8 % of total AUM in 2012) with
– Most common strategy being NegaDve/exclusionary screening, US$ 8.3 trillion AuM
– Norm-‐based screening, US$ 3.0 trillion AUM mostly Europe (65% of known SRI AuM)
– PosiDve/best-‐in-‐class screening 1.0 trillion AuM, mostly US
– Assets uDlizing ESG integraDon are at US$ 6.2 trillion
Market drivers
*Source: The Global Sustainable Investment Alliance (GSIA) Report 2012, hbp://gsiareview2012.gsi-‐alliance.org
• Impact InvesDng theme investments are growing but are sDll fragmented and
– ComparaDvely small at US$ 89.0 billion
• Sustainability theme investments are growing but
– Are also comparaDvely small at USD 83.0 billion
© 2012 AQAL Investing. All rights reserved. 13
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
The IntegraDon between TradiDonal InvesDng and
Sustainable Impact InvesDng is needed
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 15
Integral Metrics
Planet
People
Profit
Ethics, Ego, Emo8ons & Consciousness
Behavior
Exterior Interior
Individual CollecDve
Culture &
Morals
INTEGRAL INVESTING GeneraDon, AQAL InvesDng, AQAL
CAPITAL, Natural InvesDng
IntegraDng TradiDonal and Impact InvesDng
Profit
TRADITIONAL INVESTING
Profit Metrics
e.g.
TRADITIONAL WALL STREET
BANKS AND
VENTURE CAPITAL FIRMS
IMPACT INVESTING
Profit
People
Planet
Sustainability Metrics ESG, IRIS, SAM
Triple BoMom Line
e.g. GRAMEEN BANK LGT VENTURE PHILANTHROPY
Integral InvesDng is based on Ken Wilber’s Integral theory that is widely applied in 35 disciplines including science, poliDcs, economics, educaDon, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company.
Source: Wilber, K. (2000). A theory of everything: An integral vision for business, poli5cs, science, and spirituality. Boston: Shambhala.
IntegraDon
© 2012 AQAL INVESTING. All rights reserved. © 2012 AQAL INVESTING. All rights reserved.
What is the evidence that it works?
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 17
e.g. Whole Foods:
+40% Higher ROI than FoEs
over 10 years (1800% shareholder value 1995–2006)
Sample: 8.0x higher ROI than market average (S&P 500) over
10 years; and -‐ 3.1x
higher than GGCs
3.0x higher ROI than market average (S&P 500) over
15 years
GOOD TO GREAT COMPANIES (“GGC”s) -‐ 2002 • Nucor; Kimberly-‐Clark • Kroger; Walgreens • Wells Fargo; Gillebe
ESG & INTEGRALLY ACTING BUSINESSES • The Container Store; REI • Whole Foods; Trader Joe’s; Patagonia; DM
• Stoneyfield Farms
FIRMS OF ENDEARMENT (“FoE”s) -‐ 2007
• Patagonia; Amazon • Southwest Airlines • IKEA; BMW; eBay • Google; AVEDA
*Source: Sisodia, R., Sheth, J., Wolfe, D.B. (2007). New Jersey: Wharton School, p. 16
Sample evidence: Risk reducDon & inclusive sustainability already visible with ESG & integrally acDng companies
Sample Evidence
Results of the ongoing ShiP to Conscious Capitalism
© 2012 AQAL Investing. All rights reserved. 18
Evidence: Investment return in detail* 15 Year 10 Year 5 Year 3 Year
Cumula8ve Annualized Cumula8ve Annualized Cumula8ve Annualized Cumula8ve Annualized
FOE Return 1646.1% 21.0% 254.4% 13.5% 56.4% 9.4% 77.4% 21.1%
GTG Return 177.5% 7.0% 14.0% 1.3% -‐35.6% -‐8.4% -‐23.2% -‐8.4%
S&P 500 Return 157.0% 6.5% 30.7% 2.7% 15.6% 2.9% 10.3% 3.3%
*Source: Mackey, J., & Sisodia, R., (2013) Conscious Capitalism: LiberaDng the heroic spirit of business. Boston: Harvard Business Press Review. Slide was downloaded from hbp://www.slideshare.net/s2kapoor/foe-‐updated-‐financial-‐performance on Jan 8, 2012
Evidence
Note: Company returns are total returns with dividends reinvested and compounded*
FoE: Firms of Endearment
GtG: Good to Great
S&P: Standard and Poor’s index of five hundred U.S. companies
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 19
TARG
ET FINAN
CIAL RETURN
TARGET SOCIAL, ENVIRONMENTAL, ETHICAL, CULTURAL, & HAPPINESS IMPACT
PROFIT FLOOR
IMPA
CT FLO
OR
FINANCIAL FIRST INVESTORS OpDmize financial returns with an impact floor
IMPACT FIRST INVESTORS OpDmize social and environmental impact with a financial floor
Philanthropy
Making Money INTEGRAL INVESTING
Risk-‐adjusted opDmal financial return and premium impact returns
Summary: An Integrated Impact Approach
Summary
© 2012 Integral INVESTING. All rights reserved. © 2013 AQAL Capital. Strictly Confidential
The only crisis we have today is one of consciousness
© 2013 AQAL Capital. Strictly Confidential. For qualified investors only. 21
© 2012 Integral INVESTING. All rights reserved.
WE WILL CATCH THE BOAT!