Impact Invest Digest #14 - 5th September 2024

PERSONAL & CENIARTH CONTENT

It was a real pleasure recently to make my podcasting debut with Nirav Khambhati and the team at The Blended Finance Company - sharing a little about my early career journey to impact investing and my time at Ceniarth over the last decade. It's a strange experience listening back to one-self! A few too many "um", "you know", "like" and "I guess" repetitions for my liking, but definitely a fun experience and a great chance to share Diane and Ceniarth 's thinking on all things blended finance. Please do give it a listen if you can and reach out in the comments of via DM if it sparks any thoughts around collaboration.

I'm speaking at a couple of events in-person in London in the coming weeks, including the BVCA Summit on Thursday 12th September and Phenix Capital Group 's Impact Investing Seminar on Wednesday September 25th. Next month I'll be at Council on Smallholder Agricultural Finance (CSAF) 's Annual Convening on 1st-2nd October in Utrecht, DGGF - Financing Local SMEs 's 10 Year Anniversary Knowledge Sharing Event on Tuesday 22nd October and and The Global Impact Investing Network 's Annual Impact Forum on 23rd-24th October (both in Amsterdam). For any old friends attending these please do drop me a note as it would be great to catch-up in person!

ECOSYSTEM NEWS

DFIs must do more (via Devex ): outgoing British International Investment CEO Nick O'Donohoe has been putting out some strong messaging on the need for DFIs to retain their primary focus on poverty reduction amid the growing volume of climate investments. The latter will likely flow more readily to middle income countries given the lower risk and greater number of bankable projects, but it is imperative DFIs retain their focus on poverty and capital additionality. In fact, as Nick argues, DFIs arguably remain too conservative and risk averse and need to accelerate progress to a more catalytic, impact-first approach to investing.

Currency risk in emerging markets: impact investing in emerging and frontier markets has long struggled to adequately solve this mismatch between impact investors holding USD/EUR hard currency assets (DFIs, family offices, foundations) and the often volatile local currencies of the underlying revenue streams from businesses and infrastructure projects. Actors like MFX Currency Risk Solutions and TCX have pioneering innovations to hedge this risk, while others such as guarantee providers have looked to unlock local bank lending. Despite this, the hedging solutions remain deeply imperfect - especially in Sub-Saharan Africa. My hedge fund friends will understand global macro and FX in a way I never can, but it seems to me a fundamental issue is in many markets almost all investors are looking to off-load FX risk and rely on TCX and a small number of others to act as counterparties. We see much deeper availability of solutions in countries with more sophisticated domestic capital markets in Asia for instance.

With the anticipated large flows of climate finance in the coming years, solving this problem will become even more consequential. I found this recent blog and longer-form paper from Climate Policy Initiative a useful refresher framing the problem, but more importantly it presents an analysis of five potential solutions - some leveraging existing market architecture, with others at a more nascent stage. Well worth a read!

Regulatory barriers to deploying foreign catalytic capital in India: I found this recent report by Desai & Associates and Prime Coalition incredibly useful. It systematically analyses the status quo on pathways for direct and intermediated impact investments in India from international impact investors, highlighting the varying levels of operational and regulatory ease of deployment. Kudos to The Lemelson Foundation for funding this public good!

The value of fractional C-level support (via Forbes ): in previous editions I have highlighted the importance of talent solutions in frontier markets . This is a great profile by Christopher Marquis of the brilliant work of David Guendelman and the rest of the team at Do Good CFO in supporting social enterprises to improve financial management and raise capital. They have supported a number of Ceniarth's direct lending partners, including GrainPro , Onyx Coffee Thanksgiving Coffee Company and Uncommon Cacao . Cash is the lifeblood of all businesses, and supporting social enterprises to free up working capital from their balance sheet from mission-aligned investors is a huge contribution to the ecosystem.

NGOs and impact investing (via Impact-Investor.com ): partnering with non-profit fund managers and social enterprises is a core part of Ceniarth's impact-first approach, embracing more modest returns in pursuit of a laser-focus on impact from a range of partners working in the US, UK and globally. We've also seen a number of more conventional NGOs embrace impact investing as part of their toolkit, albeit with mixed success to date. As a rule, those who invest in the correct human capital and have high level buy-in from senior leadership are best placed to succeed. I enjoyed this thoughtful piece by Ian Lewis with Paul Ronalds profiling Save the Children Global Ventures ' evolving thinking on the topic - with some exciting new impact strategies emerging.

The ￡72bn question for UK foundation endowments: more advocacy for UK foundations to mobilise the entirety of their asset bases for impact, not just their annual philanthropic distributions. This time via a guest blog from Laura Boyle and Matthew Mannix in NPC (New Philanthropy Capital) . It is somewhat repetitive to beat the same drum, but if charitable foundations can't take the lead in deploying capital for impact it feels like there is something amiss in the world. Moving even 10% of the ￡72bn controlled by domestic foundations into the UK impact investing ecosystem would be transformative.

VC - hot or not? Fascinating article by Alexandre Lazarow in his 99%Tech newsletter seeking to unpack recent VC trends. His key insights, drawing on recent research from Carta , are:

1. Fund performance is way down.
2. Top quartile IRR is becoming more concentrated.
3. Graduation rates among VC startups are falling.
4. VCs are struggling to deliver DPI.

IMPACT MEASUREMENT & MANAGEMENT

Defining "impact-first": when Ceniarth and other family offices/foundations talk about impact-first investing, entities like Global Partnerships epitomise what we mean. I enjoyed Tara Murphy Forde doing a deep dive in their best-in-class approach to impact measurement and management on Kusi H. 's Scaling Impact Capital podcast.

The ‘impact measurement’ tax (via Pioneers Post ): I've previously referenced the need for more openness to embedding impact measurement costs into fund economics (as advocated by leading ecosystem actors like Sasha Dichter and Chintan Panchal ) and also praised the moves towards standardisation of impact frameworks and verification services . A more contrarian take on the issue comes from Jesse Clain of Somali-focused The Takeoff Fund . He bemoans the high costs and lack of actual input of impact data into decision-making by fund managers and investors. While I agree with some of his sentiments, in particular the idea that impact measurement and reporting is a secondary priority for most market actors still, I think there are examples of genuinely impact-first investors for whom impact is a key (if not the key) input into capital allocation - in fact many of them are in Ceniarth's portfolio. It also made me think of Kevin Starr 's recent cautioning against overly trust-based approaches to philanthropy and impact investment. In Numbers We Trust .

SECTOR-SPECIFIC CONTENT

• Understanding Microfinance Interest Rates in Agrifood ( 联合国粮农组织 ) - useful study looking into interest rates in microfinance with an agri-specific lens.

Thanks for reading!