By Jerilyn Klein Bier
What do the recently-released IMAX film To the Arctic, pollution-reduction projects in Asia and an affordable housing initiative in New England have in common? Boston-based advisory firm Reynders, McVeigh Capital Management LLC is embracing such investment opportunities to help generate big social impact and attractive financial returns.
Impact investing is not a new lens for the socially progressive firm which manages about $800 million in assets and advises on another $4 billion. Approximately 20% of its investments are in public equities tied to social impact, and 5% to 10% are in private impact investments. "That's been part of our DNA for some time," says Chat Reynders, chairman and CEO.
Reynders, who has spent more than two decades in investment management, has also structured and funded public and private partnerships that have brought more than $150 million in revenues to leading cultural institutions around the world. One of the conduits for this money has come via environmental education films he has co-produced such as Dolphins, which was nominated for an Academy Award in 2000.
Between 15% and 20% of Reynders, McVeigh clients are invested directly in these IMAX-format films. Investors get their capital back and receive an additional 20% to 40% over an eight- to ten-year period, Reynders says. Investors in To the Arctic, narrated by actress Meryl Streep and released in late April, have already received their money back, he notes.
The films, which use a replicable model, also generate very high social impact. Cultural institutions that show them get to keep 80% of the receipts, and the films draw more money and people to these institutions. Each film reaches approximately 15 million people worldwide. "It's a very, very powerful messaging tool," Reynders says.
A survey of To the Arctic viewers supports this: 60% said that after seeing the film they accessed Web sites, literature or other sources to learn more about changes to the Arctic; 86% said "probably yes/definitely yes" when asked if seeing it would impact the way they would vote in the future on environmental issues; and 88% said "strongly yes/somewhat yes" that they have been or plan to be more environmentally sensitive about everyday decisions as a result of seeing the film.
Various Approaches
Reynders and Patrick McVeigh, the firm's president and chief investment officer, stress that impact investing is not an easy area to navigate. The best way to tap into it, they say, is through private investments. These require much structuring and due diligence, and as such they've collaborated on due diligence with investment banking and advisory firm Sustainable Development Capital LLP.
The quality of investment partners also makes a big difference in impact investing, says McVeigh, who has spent three decades in the investment management industry and has been a leader in the field of socially-responsible investing.
Furthermore, the duo caution that philanthropy should not be confused with–or misidentified as–impact investing. "This is capital, and it needs to come back so it can do good again," says Reynders. "The compounding of returns is where there's the most social impact."
He and McVeigh expect that current economic conditions and an incoming generation of more socially-conscious investors will boost interest in impact investing. With fixed income returns generally hovering around 2%, they say social impact investments that earn 4%–such as community development finance institutions–are looking more attractive.
Based on general discussions with the firm's accredited investor clients, Reynders estimates that 60% to 70% of them will likely put money into the Aloe Environment Fund (Aloe III), which has its first close this month. Like other funds from Aloe Private Equity, a global investment group, Aloe III will invest in clean energy projects that bring new technology to existing companies in China, India and other emerging markets in Southeast Asia. The World Bank's International Finance Corp. is providing some funding for Aloe III.
McVeigh says it's a good time for Aloe to be invested in China and India because valuations have come down from their relatively high levels. He and Reynders also have confidence in Aloe's track record and its "boots on the ground approach." They expect private equity-like returns, which can run 15% to 20% annually.
Reynders, McVeigh is also invested in some community development finance institutions, including Boston Community Capital. BCC's Stabilizing Urban Neighborhoods (SUN) initiative, launched in 2009, has prevented the eviction of more than 150 Massachusetts residents by helping them repurchase their foreclosed homes and reduce their average monthly housing payments by more than 40%.
The firm does some impact investing through the Lakota Funds, which help residents of South Dakota's Pine Ridge Indian Reservation; the Carrot Project, which assists small farms with financing solutions; and the Calvert Foundation. It also has impact investments in sustainable timber and is conducting due diligence on retrofitting-related impact investments in the commercial and residential space.
"We use different things to fit different people," says Reynders. "It's not a broad brush."
