Nonprofits Are Seeking Profits
The International Non-Governmental Impact Investing Network has released a report showing how not-for-profit organizations are actually chasing profits by embracing the concept and process of impact investing.
More than $545 million has been invested by NGOs into businesses run by social entrepreneurs, according to the report. Almost 60% of international NGOs participate in impact investing, the report says, with the remainder exploring ways to incorporate programs and strategies into their missions.
Impact investing is a fast-growing sector of financial services that aims to produce financial returns for investors while at the same time producing socially positive results akin to charitable giving.
The big hope for NGOs, the report says, is that the social businesses to which they have invested will turn tidy profits, propping up their balance sheets, while facilitating their social missions.
“Over the last several years, the INGO sector has seen a number of developments in impact investing and social enterprise creation that are exciting in their range and potential to scale and sustain long-term mission results,” the report says.
These developments are promulgating NGO impact investments even though these organizations tend to be impact-first investors, meaning that they are ready to withstand below-market rates of return. Indeed, the report says less than 20% of NGOs expect market-rate returns, and nearly 45% expect no additional returns beyond capital preservation.
The reason for this is NGOs are not seeking to replace fundraising efforts with impact investing returns. Rather, impact-investing initiatives are being designed to augment development goals. There is a $2.5 trillion gap in funding sustainable development goals across the globe, according to the United Nations. Impact investments can help to narrow that gap.
To be sure, no NGO is going to turn away a profitable investment return mechanism, especially one that manifests value for donors. Altruism aside, NGOs have to face the fact that their business model is changing—and that they must change along with it.
“Enabled by new technologies and a generation of socially conscious millennials, individual donors are now connecting directly with recipients through peer-to-peer platforms, [circumventing] charitable organizations and traditional donor governments entirely. At the same time, new models of giving, including crowdfunding and payment for impact, are complementing traditional grant funding, unveiling tremendous new opportunities. These shifts have the potential to transform the INGO sector,” the report says.
—Thomas M. Kostigen
Hedge Fund Manager Used Dead People To Get $100M, SEC Says
A New York City hedge fund manager fraudulently received more than $100 million from brokerage accounts of nursing home and hospice care patients after they died, according to a complaint filed by the Securities and Exchange Commission.
Donald Lathen and his company, Eden Arc Capital Management, were named in the scheme, which was uncovered when the SEC did an examination of the firm.
Lathen allegedly paid terminally ill individuals $10,000 to use their names on what were supposed to be joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option, the SEC says.
He used his contacts at nursing homes and hospice care facilities to identify people with less than six months to live and successfully recruited at least 60 of them. When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts.
In reality, Lathen’s hedge fund was the true owner of the survivor’s option investments. Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations, says the SEC.
“Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than following the custody rule,” says Andrew M. Calamari, director of the SEC’s New York Regional Office.”
The matter will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
—Karen DeMasters
