Five years inside impact investing: What’s changed, what hasn’t, and what matters now

Jordana Pleat (JP): My first impression of CapShift was that we were a team incredibly committed to mission and passionate about changing how moneys invested. It’s also my first impression is a team that works hard, but genuinely everyone showed up to support one another, get through tough times, hard, ambiguous times. And I’d say that’s a core value that’s remaining the same even today.

Jesse Simmons (JS): My first impression of CapShift was, “wow, this company is ran with an acute sense of trade-offs and percolating into every decision that we make, what we spend time on, how much time we spend on it, how much is this going to move the needle for the outcomes that we’re trying to drive?” And so that idea that 99% of the time, the things that you could be spending time on are probably a distraction are not the highest and best use of your time. So be very intentional in thinking about big picture, how to spend time, how to move the needle on the things that matter to us the most. Moving capital towards people and planet. And that has stayed very much the same. And like the ethos of CapShift is being very intentional. We swim in a big space with lots of different products, and lots of different clients. How are we making sure we’re focusing on attention where we can really move the needle.

JP: I’ve gained a tremendous respect and understanding for the real partnership that’s required and involved between great advisor-client relationships. I’ve learned and gained appreciation for advisors are really not just recommend investment, see you next quarter, but great advisors are true partners at each stage of their clients’ journeys and trajectories in the fullest sense from being responsive to their interests and going above and beyond to learn alongside them if they don’t have all the answers up front, but also being proactive and bringing new ideas to their clients. And being that full partner along the way beyond just a sort of traditional recommender of investments.

JS: The biggest thing that I’ve learned working directly with advisors, foundations, and donors is that just the heterogeneous nature of every single person that we work with are all of these different categories. And you’ve worked with one foundation, you’ve worked with one foundation, you’ve worked with one family, you’ve worked with one family, you’ve worked with one advisor, you’ve worked with one advisor.

And just remembering that these are all just people that are in the midst of many different priorities, many things going on, and a complex web of draws their attention. So being able to meet people very personally with… wherever they are in their journey of getting towards mobilizing more capital for impact is paramount. And going in with very few assumptions about what their situation is, what their priorities are, what is right for them, and coming with a flexible tool set to say, we have conviction in the underlying investment opportunities that exist across this marketplace. But how we are going to best plug them into you is up to your situation and what’s best for you. And so really staying grounded in that personal, individual nature of each client and partner that we have.

JP: I think a project that has helped shape and change the way I think about impact has been the moments in time where we’ve been able to support an organization, not just at a single inflection point or period of their growth and trajectory, but given the nature of where we sit, where our clients sit across a full spectrum of capital, at different points along their journey. One example is a nonprofit that we’ve worked with, I think going on seven years now. When we first started working with them, they were raising a few $100,000 of Recoverable Grants capital to provide 0 interest credit building loans to humanitarian entrants.

It was a pilot initiative, you know, not a tremendously large, sizable number of dollars they were seeking to raise, but that sort of served as a catalyst and proof of concept for subsequent raises of Recoverable Grants and program related investments. And our donors have since been able to support them as they’ve scaled and grown as an organization through a sort of perpetual evergreen balance sheet structure. And I think what really struck me in sort of the long 10 year and trajectory is that impact is not a fixed point in time, support this fund, support this nonprofit, but really a journey and longstanding relationship between funder and or investor and recipient. and whether one funder is as flexible and fortunate as we are at CapShift to be able to support along multiple points or develops the human capital and relationship with next funders later stage subsequent funds. It’s caused and influenced how I think about impact from, you know, not just point in time to really a longstanding evolution and journey in thinking about how we grow the sector at large.

JS: One client experience that changed the way that I think about impact was we had a client who we had been deploying their private markets portfolio towards impact investments and came back and pushed and said, okay, we’ve been talking about private investment asset allocation and asset classes.

What can you do for me in my cash portfolio? What can you do for me in, what about the capital that’s going to get funded into these private investments over the next five years? What can you do for me for that? And that turned a spark, that changed the way I think about the counterfactual of where these dollars are going otherwise and just how much good can be done with capital that is earmarked for to flow somewhere else in the future, how much can be good can be done in the meantime? And so, examples like community development, financial institution note programs that can put huge sums of capital to work for communities and underserved and underrepresented communities in the US.

While providing a strong store of value to ultimately fund private investments or grants that will be flowing in the future to cash management solutions that can fund community banks and credit unions and underserved and underrepresented communities across the country as examples of things that by pushing around

What are all the resources that I have to put towards the solutions that I’m working towards can really enhance the impact profile of a portfolio beyond just the normal private equity venture capital, real assets sort of portion of the portfolio.

JP: Trends I’m paying attention to. I’m thinking a lot about the intersectionality of the impact investing sector, particularly what it means to be a community focused investor or place-based investor, and how do you need to be considering not just affordable housing or small businesses, but what impact our changing climate might have on local communities. Specifically, I think I’m probably not alone in thinking about how is AI going to disrupt, present opportunity, and potentially new risks for us as impact investors, and where do we as impact investors need to come in and fill gaps, whether it’s thinking about how are we going to support a changing workforce, or mitigating bias in how our data presents insights and recommendations to us. I think that’s something a lot of people are thinking about. And then probably lastly, just how do we as impact investors need to respond to a changing political landscape, whether it’s sources of federal funding drying up for things like renewable energy infrastructure or development finance, very much thinking about what is that next frontier, next role, particularly for catalytic capital impact investors where there is greater risk tolerance, flexibility around returns to be thinking about where is that next frontier of gaps that we as impact aligned investors need to be doubling down and filling.

JS: A trend I’m paying close attention to right now is also AI related, but specifically how AI is going to change the field of private wealth management. Ten years ago, we were talking about robo-advisors as the thing that was going to drive fee compression and traditional advisors out of the market altogether, and how robo-advisors were going to be the thing of the future that we should all be preparing for, that by and large has not materialized in the way that was being hypothesized 10 years ago. And yet AI and the effect it can have on intermediated industries looks different than what we may have expected from the robo-advisor movement. And so, I am curious to see how this changes the way that financial advisors and private wealth generally are stewarded. I’m optimistic that it will provide avenues for tighter linking of what is a priority of underlying asset holders, including financial return, risk, liquidity, as well as outcomes, effectuating agency on the world around us to opportunities that are better suited to achieve those goals.

But there’s a lot of ripple effects that we might see in the marketplace and those tend to be pretty underrated in terms of how capital is ultimately decided to be allocated that I’m paying close attention to.

JS: I think questions that clients are asking today that they weren’t asking five years ago; we are moving down a chain of skepticism to curiosity to action. And so, what 10 years ago might have been, I don’t think I can do. Have an impact on the things that I care about out of my investment portfolio, may have five years ago. I’m curious about tell me more about what this might look like today is how are you poised to get me to this solution that I have conviction in exists?

So, I think there’s more and more buy-in that, gosh, I can have my cake and eat it too. I can have the investment profile of returns that I’m looking for along with outcomes, non-financial outcomes that I care about and are consistent with my broader goals.

JP: Questions that clients are asking today, they weren’t five years ago. I think five years ago, there was still work to be done to answer the question of, can I be an impact investor and earn a market rate return? I am grateful that increasingly I continue to see it. We don’t need to have that conversation beyond, there is a bucket of impact investing capital where; to use Jesse’s words, you can have your cake and eat it too. There is also a bucket of capital whereas investors and clients are increasingly asking, where should I be making trade-offs? Where should I be accepting lower returns or taking higher risks? But fortunately, I think we’ve moved past a conversation of if I need to be an impact investor, I by definition need to accept a lower return or some sort of concession on my impact and my investments.

I think we’ve, I’m grateful to see now we’re almost a decade into the rise of the first billion dollar plus private equity manager. We have years of track record to show that market rate impact investments can compete, if not at times even outperform non-impact aligned market-oriented investments, which opens up a really exciting aspects of conversations that we can then have with clients around what bucket of capital is going to aim for market rates of return and what capital does that now leave over to be catalytic, to be okay accepting lower returns or higher risk to achieve outsize and disproportionate impact.

Clients are asking a lot of questions around beyond ESG, beyond public markets, there has to be more in terms of a degree of depth and proximity that I can get to the impact, often with private alternative investments or philanthropic capital, as well as questions around where. Where does all this look different, and how does it look different in the age of AI?

JP: I think I’ve come to learn that there’s no silver bullet or one intermediary that holds the keys to the impact investing kingdom. So much of the way that our big financial institutions move and think differently about impact is by their underlying clients asking them to go deeper and go beyond where their experience and existing capabilities lie today. So, I think I’ve gained a deeper appreciation that there’s no silver bullet, but this is a complex web of interconnected systems that require highly aligned, mission-oriented capital movers and highly responsive and intentional and thoughtful intermediaries to meet that demand.

JS: I’m continuously surprised by just how many solutions are out there, how many organizations, people and firms are working to bring solutions to bear for every flavor of environmental and social challenge that exists out there. We bring on clients with all interests under the sun. And as they say, I’m interested in the soil microbiome for healthy forests, or I’m interested in underrepresented entrepreneurs in Cleveland, or I’m interested in the source of refugees in Central America. There’s someone working on an investment solution for all of those and that continues to blow me away.

JP: This was the easiest question of all of them. So, so much from Jesse. Jesse has an incredible ability to not sweat the small stuff, keep his eyes on the bigger picture of what matters, both professionally related to a specific client or… business problem that we’re trying to solve, but also interpersonally too, and just consistently day after day showing up as an awesome teammate. And yeah, just huge, huge gratitude, appreciation for the friendship and partnership that Jesse has given us along the way.

JS: Right back at you. I learn from Jordana every day. There is no problem too big, too murky, too unscoped for Jordana. Her ability to bring, put things into a framework, break them down into small pieces and drive us towards meaningful incremental progress on everything is amazing. We bite off big problems at CapShift. So how to get more of the trillions of dollars of invested capital towards compelling solutions through all different flavors of investment structures, asset holders, et cetera. And Jordana, your ability to break this all down into smaller pieces put around frameworks and move towards implementation and execution is amazing to me.

JS: This work still matters to me five years in because the problems that we’re working on have only continued to grow. And so, and the solutions to those problems have only continued to proliferate. The wealth in private asset holders’ hands has only continued to grow.

The dots that we connect to bringing that capital towards solutions to the most important problems in the world have never been more important. And as we continue to grow and pass, a billion and a half dollars catalyzed towards these important solutions. It’s continuing validation that there’s a need here, and there’s a lot of folks that can benefit on both sides of that equation from us continuing to show up.

JP: Five years in, the work still matters because there’s still hard work to be done. We still have pressing social issues, environmental problems, and there is no shortage of need and capital out there to address those gaps. So, I think we’ve come a long way in the last five years of making the notion that flexible capital holders of family offices, foundations, and high net worth individuals can think differently and innovatively about their assets. But I think we have a long ways to go for that to truly become mainstream. So, until impact investing is synonymous with having assets and thinking about asset allocation, I think there is still plenty of work for us here at CapShift to get done.