UBS, Macquarie meeting on sharing of minds for impact investing

The global leader of philanthropy for UBS is in Australia meeting with Macquarie Bank, the Paul Ramsay Foundation and others on how best to invest in social causes.

UBS and Macquarie Bank working together on spending other peoples’ money without looking for chunky profits … quelle horreur!

Yet that is exactly what’s happening in Sydney this week.

Just four months after joining forces to create The Foundation Group for Impact Investing, UBS’s global head of social impact and philanthropy, Tom Hall, has travelled to Australia for three days of meetings to share thoughts on social impact investing – the process of using philanthropic funds for causes where returns can be as low as just receiving back the initial investment.

It means fierce investment banking rivals UBS and Macquarie are sharing ideas with the Paul Ramsay Foundation, the Forrest family’s Mindaroo Foundation, and other social impact funds to devise the best ways to invest philanthropic dollars.

Mr Hall said philanthropic capital could rise from $US2 trillion to $US10 trillion in the next decade and UBS, as the world’s largest wealth manager, is seeing strong demand from wealthy clients wanting to invest in causes that better the world.

“We have well over a million high net worth individuals globally and 95 per cent of our clients tell us that they want to get engaged in philanthropy, that they want to use their wealth to address some of the social environmental problems, and we think core to that is providing good advice on how you maximise your impact,” said Mr Hall.

Tom Hall, Global Head Social Impact and Philanthropy, Susan Clear, Head of Impact Investing, Macquarie Group Foundation and Ben Smith, Head of Impact Investing, Paul Ramsay Foundation at UBS, Sydney. Picture: John Feder/The Australian

In Australia, the figures on philanthropic spending are opaque, but Mr Hall said UBS is seeing an uptick in demand and is in the process of starting a social impact fund here.

“We’re seeing it grow here in Australia, as entrepreneurs are making more money and they’re deciding to put more into philanthropy,” said Mr Hall. “We’ve started to talk to partners. So I would say we’re in the foothills of doing some things.”

UBS spent $US35m last year on social impact funding, based on its model of matching client donations to 10 per cent.

Mr Hall believes that social impact funds should be more focused on whether their investments are setting out what they intend to achieve, rather than just on dollar figure headlines.

“You need to measure your impact,” said Mr Hall. “That’s more critical in terms of how philanthropists behave, over and above how much they give.”

He cites a microfinancing project he worked on in Malawi as a case in point. In that example, mosquito nets donated were being used for fishing, rather than protecting people from being bitten by mosquitoes and preventing malaria. The nets had been soaked in the insect repellent DEET, which is toxic to the waterways and that people who ate fish.

“If you don’t intentionally ensure that your activities are actually used to address the outcome you’re trying to solve for, in this case reducing malaria, then you can get a negative externality that you didn’t actually account for.”

A positive example of social impact investing for UBS came from a Liberia literacy program, where recent school graduates taught children via iPads, because the teachers were not showing up to work and literacy rates in primary school were below 50 per cent.

UBS provided $US100,000 to conduct a randomised control trial that found children on the program were learning almost twice as fast as the existing school methods.

This program is now in four different countries to about 200,000 kids and is often funded by investment capital whereby investors receive a minimal return based off a fee for success from the governments involved.

The Foundation Group for Impact Investing is excited about the $100m pledged in the latest budget to be put towards an “outcomes fund” to be used to seed invest in state government social impact bonds, and a $100m social housing fund.

Macquarie Bank has so far set aside $20m in a trial program to see how it can invest in philanthropic causes, where it aims for the only return to be the initial investment.

Macquarie’s head of impact investing Susan Clear said that so far it’s invested in programs by Good Return, a charity that high profile businessman Gordon Cairns chaired for 15 years, and White Box Enterprises, which is partnering with the Department of Social Services on an employment program for people with a disability.

Ms Clear said the only rule is that Macquarie’s impact investments must “preserve the capital,” as opposed to straight out philanthropic donations.

“We’ve got quite a bit of flexibility about the things that we can invest into, whether that’s making a direct loan, providing working capital, whether it’s going into a fund, so we’re trying to identify where we can use that catalytic capital,” said Ms Clear.

“We’re willing to make an investment which we might not get the same level of risk returns that you might otherwise get.”

At the Paul Ramsay Foundation, the group has allocated 10 per cent of its funding to be spent on impact funds which have “risk adjusted” financial returns, according to Ben Smith, the Foundation’s head of impact investing.

Mr Smith said the meetings with UBS, Macquarie and others in the 32-member strong group this week were focused on “outcomes” funding, where foundations invest in a project and receive a financial return based on outcomes achieved.

“There is a complete range of Australian foundations, some that are very, very small and nascent and don’t really know about impact investing, but they want to think about how they might be able to use a grant making differently to create a form of financial return and fill a gap in the market, right the way through to those that, you know, are more mature and more experienced. It’s all about sharing learning. So it’s about learning from Tom’s experience, global experience, and about how we apply some of that in Australia?”

The Paul Ramsay Foundation started impact investing in early 2020 and has now invested just over $140m.

“The ambition is to continue to grow,” said Mr Smith. “It’s about generating a financial return, whilst also ensuring that you’re generating measurable impact.”