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Durreen Shahnaz's Singapore-based Impact Investment Exchange connects those at the bottom of the economic pyramid with Wall Street capital. (Photo by Ken Kobayashi)
Business trends

Asia's 'impact investors' favor social investment over charity

Returns expected to keep pace with conventional stakes

TOMOMI KIKUCHI, Nikkei staff writer | Japan

SINGAPORE -- In 2016, veteran Japanese investment banker and private equity investor Takeshi Kato embarked on a new chapter of his life. Deeply moved by the poverty and social issues he saw while working in India, Kato began investing in social enterprises through BWiz Capital, a small Tokyo-based investment company he set up with some financial help from friends.

The company's portfolio ranges from OneBreath, a U.S.-based startup that provides affordable medical ventilators to hospitals in India, to Indonesia-based Krakakoa, which helps cocoa farmers seeking to produce beans for artisanal chocolate.

While these social enterprises target producers and users at the lower end of the socioeconomic pyramid, Kato said he doesn't compromise when it comes to financial returns. "When I invest in social enterprises, I use the same metrics I would use for investing in conventional startups," Kato said. This means a return of 20% or more. "For me, social impact is additional cream on the top, not a trade-off for financial returns."

Kato is one of the growing number of Asia's "impact investors" -- those who choose to use a portion of their personal wealth to fund social enterprises. The number of high-net-worth individuals in Asia is rising rapidly, and many are channeling their money into social investment rather than charity, viewing this as a way to do well while also doing good.

The widespread assumption is that this type of investing offers comparatively little in the way of financial returns. But recent figures reveal that investor expectations are evolving.

A benchmark consisting of 69 social impact investment funds created by Cambridge Associates and Global Impact Investing Network shows that annualized pooled returns stood at 5.97% in June 2017.

The capital connection

Various organizations in Asia have been working to create a number of "investment-ready" social enterprises that connect these start-ps to global capital. Kato found two of his five social business investments through Impact Investment Exchange (IIX), a Singapore-based company that runs platforms to link its network of impact investors with social enterprises around the world.

IIX's mission is to accelerate the growth of impact enterprises by offering mentorships and connecting them with global capital. As of December 2017, the organization had helped over 35 impact enterprises raise equity and debt capital worth more than $28 million.

In 2013, it created the world's first social stock exchange in partnership with the Stock Exchange of Mauritius. While only open to limited accredited investors, it was IIX's first step toward creating a liquid, transparent market for investing in social enterprises. In 2017, it listed an $8 million social sustainability bond on the Singapore Exchange -- the first listing of its kind.

Durreen Shahnaz, a former investment banker at Morgan Stanley and an ex-Grameen Bank employee, founded IIX in 2009 at the height of the global financial crisis. While Shahnaz saw how microfinance can empower women in rural developing parts of the world, she also saw limitations.

"I am a big admirer of microfinance but it stayed in its own world, and the [women] were still not participants of the financial system," she said in a recent interview with Nikkei Asian Review.

Shahnaz's works earned her the 2017 Oslo Business for Peace Award, presented to international business leaders who create business and social value through responsible and ethical means. By 2022, IIX aims to unlock $1 billion of impact investment capital and touch 60 million lives.

IIX's programs cater to social startups from the seed-capital stage to the prelisting and exit stages, as well as to investors themselves. The organization runs courses for investors, fund managers and others on how to assess impact investments.

"I'm always trying to figure out that link between Wall Street and the rural parts [of the world] and create an inclusive market," Shahnaz said.

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