Integrated Investing Read online

  IMPACT INVESTING WITH HEAD, HEART, BODY, AND SOUL

  Copyright © 2016 by Bonnie Foley-Wong

  All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, without the prior written consent of the publisher or a licence from The Canadian Copyright Licensing Agency (Access Copyright). For a copyright licence, visit www.accesscopyright.ca or call toll free to 1-800-893-5777.

  Bevel Press

  Vancouver, BC, Canada

  Cataloguing data available from Library and Archives Canada

  ISBN 978-0-9953274-0-5 (paperback)

  ISBN 978-0-9953274-1-2 (ebook)

  Produced by Page Two

  www.pagetwostrategies.com

  Cover and interior design by Peter Cocking

  ebook by Bright Wing Books (brightwing.ca )

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  For more information visit:

  integratedinvesting.ca

  piqueventures.com

  For my parents, Robert and Janet Wong,who took risks and invested in me.

  For my daughter, for whom I’m trying to create a better future.

  CONTENTS

  Introduction

  1 Access to Essential Resources

  2 Why We Invest

  3 Impact Investing: Taking Care of the Village

  4 Investing With Your Values

  5 Integrated Investment Decision Making

  6 Mindsets

  7 Integrated Investing Toolkit

  8 Integrated Investment Relationships

  9 Gender Lens Investing

  In Closing

  Further Reading

  Acknowledgements

  About the Author

  Landmarks

  Cover

  Title Page

  Copyright

  Dedication

  Contents

  Beginning

  INTRODUCTION

  T H E WAY WE think about investing needs a reboot. Traditional economic theory assumes that the ultimate goal of business is profit maximization; since the 1980s, the focus has been on maximizing shareholder value.

  The term “impact investing” was coined in 2007 as a way of describing a new way of thinking about investing. It seeks more than just financial outcomes from an investment, and more than just profits. With the development of impact investing, investors started to seek opportunities that not only had positive financial outcomes but also positive social or environmental returns.

  To achieve different outcomes, however, we need a different starting point, and we need different tools for evaluating and acting upon investment opportunities. That’s where integrated investing comes in. I developed this system to provide investors with the unique starting point and tools we need to really make a positive impact with our investment activities.

  A Perfect Storm

  Throughout this book are references to the 2007–8 financial crisis and the global recession that ensued. Eight years on, it is still strong and present in our minds—a benchmark against which we compare our decisions, actions, and performance.

  Economic cycles are not new, but the boom that ended in 2008 demonstrated how complex and interrelated our financial systems are on a global scale. Is it a coincidence that the phrase “impact investing” was coined at a time when the world’s financial and economic systems were about to enter a period of turmoil? Not everyone prospered during the boom time, and not everyone suffered great losses in the recession that followed. There has been a growing sentiment around inequality in the last seven years, and a number of books and research papers have been published on the subject of income and wealth inequality, including The Spirit Level (2009), a Michael Norton Harvard study on wealth inequality (2011), and Capital in the Twenty-First Century (2013), among others. Another visible signal of things being not quite right was the Occupy Movement that sprang up in the fall of 2011.

  As these conversations emerged, I started to think about the systems and processes at play. I have worked in the finance industry throughout my career, and I learned in great detail how money moves through markets and how people make investment decisions when I worked in investment banking during the economic boom between 2003 and 2008. This experience, combined with my love of breaking things down into basic principles, led me to develop integrated investing.

  This approach started with the realization that people benefit from integrating analysis, emotion, body, and intuition into their investment decisions. This idea goes against conventional thought, which says that analysis is the only input necessary for investment decisions, and that the best decisions are rational ones. But if that is the case, why do we continue to have significant social and economic issues globally, and why is income and wealth inequality worsening?

  With the starting point of integrated decision making, I soon realized that to successfully implement integrated decision making and impact investing, we need a supportive environment and these things:

  An end goal: To what end are we making integrated investment decisions? We want to have a positive impact, but what is that impact? Don’t we all want to survive, thrive, and be happy?

  Conditions: What motivations and mindsets set us up to make integrated investment decisions?

  Maps: How do values help us make decisions?

  Practical tools: How do we put integrated investment decision making to work? How do we gather the information we need to make an integrated investment decision?

  Integrated investing is a holistic approach that encapsulates the end goal, conditions, maps, and practical tools needed to put integrated decision making into practice.

  Beyond Being a Good Consumer

  Many of my friends and colleagues try to shop ethically, sustainably, or locally. They can do so because they have multiple options available to them when it comes to purchasing decisions about clothing, food, and gifts. However, options are still limited when it comes to investing decisions. Credit unions may present a better alternative for banking and financial services, but when it comes to getting advice about investing and the investment products themselves, there isn’t much variety available.

  Maybe you have experienced a similar problem. You might purchase products from a local designer, craftsperson, or small business owner, but you don’t feel equipped with the right techniques and tools to invest in those businesses. You might care about a particular cause, and the companies that your mutual funds are invested in may actually be contributing to the problems your cause is trying to address. You might run your own business with a set of values, but don’t know how to make those same values feature when you make investment decisions.

  This book will help you think about investing differently, take the first steps toward making a positive impact with your investment dollars, and understand the new trend called impact investing.

  Who Am I?

  When I was a child, my parents, who were fairly risk-averse at the time, saved money on my behalf and purchased government savings bonds. Once I started working and graduated from university, I started to save and invest my own money. Until I developed integrated investing, my own investment portfolio looked rather average. I never felt I had the time to study companies on the public stock exchanges, so I invested in mutual funds. As a new graduate fresh out of university, I sought help from my sister’s financial advisor. Later, when I moved away from home to another country, I found my own advisors.

  Having a career in finance and getting educated in the investment industry certainly changed my perspective on investing, but the evolution has been gradual. When I started to understand the dynamics of business, economic systems, and markets, I started to choose the mutual funds I wanted to invest in
and instructed my financial advisors to fulfill those transactions. But after the financial crisis of 2007–8, I became disillusioned with the public capital markets and my portfolio of mutual funds. I couldn’t see how my mutual fund investments could deliver the financial or social impact returns I wanted.

  I believe there is a fine line between poverty and wealth, and it has to do with access to education, information, and the skills for making good decisions. Education was a game changer for me. It got me my first job during and after university, and it got me to London, one of the financial centers of the world. I set about educating myself about how investing could be done differently. This education led me to impact investing, and then to creating integrated investing.

  In 2012, I started to develop my new approach and in parallel, developed Pique Ventures, an impact investment and management company that provides fund development services for impact investors and through which I provide services as a senior executive in the investment industry. I also founded Pique Fund, an impact venture fund that invests in early-stage startup companies that aim to generate both financial and social impact returns. Integrated investing is the investment methodology that I put into practice every day in both my business and the fund. My goal is to help people access the knowledge, information, and skills to make impact investing decisions effectively and confidently.

  In This Book

  Integrated investing’s foundational pieces start with a concept of impact I developed called access to essential resources . In Chapter 1, I introduce the six categories of essential resources we need to survive, thrive, and be happy. Essential resources are the products, services, and activities that we need to fulfill our wants and needs. I talk about how businesses exist to give us access to essential resources, and why businesses provide different levels of it.

  In Chapter 2, I explore why we invest in the first place. Our reasons influence how and in whom or what we invest, and often lead to more questions and more information. In this chapter, I look at the definition of investing, describe how where you are in life affects your readiness to invest, and share with you eleven purposes of investing and how they relate to the six essential resources.

  Integrated investing is part of a new field called impact investing . In Chapter 3, I talk about the emergence of impact investing and how it connects with the impact concept of access to essential resources. I then describe the qualities that make an investment opportunity an impact investment.

  Values affect decisions in your life. In conventional investing, a specific set of values has been foisted on investors. In Chapter 4, I discuss how your personal values can be introduced into your investment activities, and how to make investment decisions that align with your values.

  A radical new way of making investment decisions, integrated decision making , is introduced in Chapter 5. I walk you through how information from analysis, emotion, body, and intuition not only affects our choices, but is also essential for making decisions in the face of uncertainty. I also share techniques for integrating analysis, emotion, body, and intuition into investment decisions.

  Integrated investing requires certain conditions, so in Chapter 6 I talk about six mindsets that are important for a new approach to investing and investment decision making. Grouped into three categories, these affect your perceptions about resources and risks, influence your outlook on how to relate to and interact with others, and affect your frame of mind about results.

  In Chapter 7 I introduce the integrated investing toolkit , practical tips and tools that can be applied to identify and evaluate impactful investment opportunities. I cover traditional analytical tools and practices, contemporary tools adapted from lean startup tools, and my own impact evaluation tools.

  The integrated investment relationship and resources , discussed in Chapter 8, are designed to help you get started and find opportunities where you can hone and practice your integrated investing skills. I walk you through some places to start investing, how to start building investment relationships, and some of the common forms of investment.

  In the final chapter, I share a specific application of integrated investing. From my own perspective and experience as a woman in the investment field, I discuss gender lens investing . I discuss gender equity and inequity, explain what gender lens investing is and why it is important, and what you can do to invest with a gender lens.

  Making a decision about an investment opportunity that has the potential for positive impact and financial returns is complex. This book will provide you with foundational concepts, information, and tools to help you make the decisions you’ll be required to make throughout an investment experience. It covers analytical, emotional, physiological, and intuitive inputs that could influence your decision making so you start investing with head, heart, body, and soul.

  1

  ACCESS TO ESSENTIAL RESOURCES

  I N 2007, I found myself at the pinnacle of my career while working for an investment banking team at a Dutch bank. I worked on some of the biggest, most lucrative commercial real estate financings in Europe, ranging from €15 million ($ 19.5 million) to €1 billion ($ 1.3 billion) in size. When I was headhunted for a sovereign wealth fund, it felt like a natural progression to make—from debt financier to equity investor. The sovereign wealth fund was backed by a significant amount of money, so much so that it was plotting a hostile takeover of a British supermarket company for a price of over $ 20 billion. The fund proposed to borrow over $ 12 billion to pay that price.

  By this point in my career, these large deals had long since been reduced to numbers on a page. As a result, the customers who bought the food at the British supermarket company and the staff that worked there didn’t feature in the deal analysis. I learned the hard way that the fund was not about innovation or solving real problems for people. Any attempts I made to think creatively about challenging and unusual opportunities were frowned upon. Any investment deals I put forward that did not fit the mold my bosses had in mind (an exaggerated version of borrow, buy, and flip quickly) were considered a waste of time. The work I was doing, and the kind of investments the fund wanted me to do, did not feel purposeful.

  Problems in the financial sector were starting to brew in 2007. Interest rates were rising, and rumors of bank takeovers were rife. The Dutch bank I had been working for until May of that year was acquired by a Scottish bank shortly after I left. In November 2007, I left the sovereign wealth fund and, coincidentally, the fund abandoned its bid for the supermarket company amidst “the deterioration of credit markets,” which is industry speak that meant that the cost of borrowing the money needed for the takeover had increased significantly and they did not think they could profit from the deal.

  Leaving the sovereign wealth fund was a rude awakening. Working there was supposed to be a logical next step in my career, but instead it had turned out to be disastrous. The lucrative paycheck and the well-appointed London office they’d provided me with could not hide the fact that they characterized the problems in the financial and investment industry, and that the values upheld by the people working at the fund were at odds with mine. Years of cheap debt and fast deals were about to come to a crashing end. I had to get out, but where was I going to go? Career-wise, I felt lost.

  I took this time to redirect my energy toward activities, businesses, and people that focused on innovating and solving real problems whilst working toward economic viability and sustainability. I concentrated my efforts on activities and subjects that interested me and that I had experience with. It led me to think carefully about why we invest in the first place, and about the role of finance and investment in today’s society. I traced the path of investing back to the purpose of business and to the things we need in order to lead happy, healthy, and thriving lives.

  In this chapter, I will share my insights and findings from my journey with you. These insights form the foundation of the investment approach I developed. In this chapter, you will learn the following:
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  The six essential resources that we need to fulfill our wants and needs in life

  How businesses exist to give us access to essential resources

  Why businesses give us different levels of access to essential resources

  Essential Resources Fulfill Our Needs

  Since leaving investment banking and the sovereign wealth fund, I’ve spent a lot of time thinking about what makes us happy, what the purpose of business activity is, and how those two things may be connected. For people to survive, thrive, and be happy, there are certain things in life we all want and need. We need food to eat and clean water to drink to satisfy our hunger and thirst. We need shelter and clothing to protect us from the elements, and care, treatment, and remedies to protect us or treat changes in our health such as injury, illness, and disease. We need stories, images, and sounds to express ourselves and connect with others, and transportation to connect us from place to place. We need information from all sorts of sources to make decisions.

  I took stock of all these things and summarized them into the following six categories of essential resources:

  Sustenance: Essential resources to sustain ourselves

  Expression: Essential resources to communicate and express ourselves

  Connection: Essential resources to connect and develop relationships with others

  Managing Change: Essential resources to prepare for or experience change or for managing change

  Making Decisions: Essential resources for making decisions

  Exchange: Essential resources for exchange

  Some resources fall into more than one of these categories.

  Essential resources are the things that we must find, access, process, and synthesize to survive, thrive, and be happy.