Ming Wong is co-founder of Asia Community Ventures, a Hong Kong-based nonprofit organization that promotes social investing and collaboration in Asia. Ming recently sat down with us so we could pick his brains on all things social sector and impact investing in Asia. We previously chatted about social impact careers and the social sector itself. Now, in the final part of our conversation, Ming gives his thoughts on how he think impact investing needs to evolve.
APF: After moving away from the traditional banking space, you’ve become a big advocate of impact investing. So let’s talk about that. Do you think there is currently a false dichotomy between impact investing and institutional investing?
Let’s take a step back for a moment and talk about fund managers. Few fund managers say to their clients, ‘I’m going to manage in the style and approach that I want. If you believe in me, give me your money.’ Most large fund managers did not get to their position until they responded to large institutional investors, and the institutional investor universe is controlled by the many consultants that work in that space.
If you’re a consultant, you have to justify a fee, so you like putting people into buckets—you’re a private equity consultant, an emerging market consultant, etc. It allows you to compartmentalize. So partly because of that, there’s this notion that if you want impact investing to be taken seriously you almost have to create a separate category, especially in the beginning. 9 out of 10 in this field would be happy when we no longer have to call impact investing, “impact investing.” All investing would incorporate all these wonderful things. But now we have chosen to use that term to help educate the public and also to draw attention to more sustainable approaches to investing. The distinction is natural; it’s almost a transitional thing.
But hypothetically, let’s say you’re a fund manager and you invest in bonds. You are truly social, so you only buy bonds in social impact categories. You just do it without making a big song and dance about it. Your results are good and you move into the first quartile. People want to give their money to you. Then for whatever reason, you suddenly start telling people, ‘You know what, actually I’m an impact investor.’ Some of the investors might actually think, ‘Oh my god, that’s not what I signed up for! Maybe I should take some money out.’
They may think that approach is going to reduce their returns as opposed to making it more consistent. Fund managers live in a world where they have to deal with investors’ perception and what investors want.
APF: I guess it’s the ‘past performance does not guarantee future success’ thinking.
MW: It’s a bit like this: Sometimes the name is important. If I were tell you, ‘Hey, I want you to support social enterprises in San Francisco,’ most people will ask, ‘what are social enterprises and why should I support them?’ But if I tell people I want you to support local businesses in San Francisco, it’s very difficult to object to that, so the language, how you position something, is very important.
My partner and I spoke with the General Chamber of Commerce in Hong Kong. We told them, ‘Don’t tell people you want to support social enterprises, just tell people you want to support local businesses.’ Who on earth is going to object to that? And what is a local business? Maybe a bakery in a residential area. Is it a social enterprise? It may not be; it doesn’t matter. It’s creating jobs and offering needed services. If we’re talking about job creation and poverty alleviation, small and local businesses are collectively doing more than any large company. So ideally you want jobs to be created within communities.
APF: So you think impact investing should widen its focus?
MW: When I invest in something, I focus more on what impact I’m really trying to achieve. In the U.S., you have B Corps that have to follow particular guidelines or be endorsed. Does it mean that impact investing is only about investing in B Corps? No, not necessarily, because it takes time. We don’t have too many B Corps in Asia yet. Hopefully one day all companies will want to be B Corps, and that it will be more unusual not be a B Corps, but it’s not where we’re at right now.
That’s why when I think about impact investing, I’m not saying it has to be a company that checks all the boxes of IRIS. I think more of it as going back to basics: local businesses, businesses that address community needs. The question is: How do you encourage that in a way that makes people comfortable?
APF: Do you think, then, that the impact investing space is being constrained by the supply side or the demand side of the equation? As, in there aren’t enough investors or there aren’t enough companies to invest in?
MW: That’s a tough question, because I think it depends on which stage and size of investment you’re looking at. If you are a very large pension fund manager, you know that to make a dent in your results, you need to be investing in the hundreds of millions. Therefore, you have to invest in large opportunities. On the other hand, if you are a small family foundation and you have, maybe 5 million you want to put to work, making an investment of 50k to 100k is relevant. For that level, you can actually find lots of opportunities. The question becomes, do you have the risk appetite?
Having said that, I do think there is a missing middle. My own experience validates this. For people looking to raise 1 – 2 million, it’s not much of a problem because you can get enough investors to put in 50k to 100k. For people who are looking to raise, more than 10 million but under 50 million, there’s a much bigger challenge. You can’t raise money from 250 people each offering 100k; it’s too much work. You would need people to step up with a couple of million. That is somewhat missing. Whereas in traditional venture capital space, you do have a well-established ecosystem of funders from different sizes, in impact investing, you don’t have that.
APF: Impact investing is a relatively new field. Do you think it has a greater onus to prove itself because of that? In particular I’m thinking about impact investing in relation to CSR. CSR gets a bad rap in some circles as just a marketing or promotional thing nowadays. Is there a danger impact investing could be diluted in the same way?
MW: There is a risk, but the risk is probably one of over expectations. People always talk about the importance of a good role model, right? People always ask me: What are the social enterprises that are really good? What have you invested in? Do they really provide a good financial return? And then the conversation will invariably turn to something microfinance-related — why in India were there people looking to making money, forcing loans on people and abusing the system.
I think people who have decided to go into impact investing should be doing it for the right reasons, meaning they genuinely believe that this is the approach that works. So talking about good role models, do you know the KL Felicitas Foundation, started by Charlie and Lisa Kleissner? They committed 100% of their portfolio to social investments, and it worked. And not only did it work, it outperformed all the benchmarks. Just read the Sonen Capital report. That’s just one example, but hey, one example is important. Until Linsanity happened, no one believed Asian Americans could really play basketball. So it has to start somewhere.