Reflections from Hamilton Fish Park

Squash at Hamilton Fish Park
A picture I took while leaving the park. The white box is the public squash court.

Last summer, I joined a group of about 75 people to watch an exhibition squash match at the first outdoor public squash court in New York City. Former World #1 and squash legend Nick Matthew was playing American up-and-comer Andrew Douglas. If this were tennis, this would be pretty close to the Federer-Isner match, except that since it’s squash, 75 people showed up instead of 1,000.

The exhibition was to bring attention to the first free, outdoor public squash court in New York City, in Manhattan’s Hamilton Fish Park, a beaux-arts jewel in the chain of public parks built in New York City in the early 20th century. The park is surrounded by hi-rise public housing, squat, hulking and indifferent.

As a native New Yorker, I love finding new neighborhoods and I’m always struck by how different worlds coexist next to each other, marked by invisible borders of class, race and unspoken signals. While I’d never been to the Park, I spent two years going to a yoga class six blocks away on Clinton Street, and would eat an Italian lunch after each class. I’m more than an observer of separation, I’m a participant.

The afternoon was a coming together of different worlds, creating as many questions as answers for me.

The public court is, of course, privately funded. It is innovative and technologically advanced – it plays like a wood-floored squash court but is impervious to snow, rain and heat. The privately-raised funds were to demonstrate that squash could be a public game. It’s an effort by squash lovers to democratize access to an historically elite, blue-blood sport. Since squash is one of the few niche sports left that can get you a ticket to an ivy league college, it’s a laudable endeavor.

And yet the court is miniscule in the context of the park, dwarfed by the public space and the 50×25 yard swimming pool built by Robert Moses, one of the most powerful men of his era (who, of course, worked in the public sector). The pool itself was funded by the Works Project Administration, one of 10 $1 million pool projects started in 1936 ($18 million today) for the city parks. This pool, over the decades, has vacillated between the pristine state it is in today and, in the 1970s, a dangerous place to buy and sell drugs. There are no simple answers.

Back to the squash match on that hot summer afternoon. For an hour or two, worlds come together: a group of Squash fans from the 1%, kids from CitySquash, a not for profit that is bringing squash to urban schools, and the park regulars going about their business, playing basketball and splashing in the pool.

We were all quietly other occupying the same space, not quite connecting or interacting but at least in physical proximity.

It reminded me of an unspoken truth of modern social change work: that the “exciting,” “innovative,” and privately funded now idea is often nice but small relative to the greater forces of public spending, public spaces, social fabric, and community. It felt metaphorical to witness this positive, new-style, small charity project in a revived, old-style public park that itself is nestled on the Lower East Side, the corner of Manhattan where wave after wave of immigrants arrived, struggled and, often, eventually thrived.

I left that afternoon seeing the strengths and limitations of both the old and the new approaches, and wondering what it will take for us to do more than comfortably and habitually occupy our own spaces: how do we actively and deliberately make the best of these spaces come together?

Most days, even if we’re in social change work, we are like the two neighborhoods right next to each other: the fancy yoga studio five blocks away from public housing. We frequent our respective places, are generally positive and well-intentioned people, but we don’t talk to each other.

Sometimes we do a bit better, like we did that afternoon: two worlds occupied the same space and peacefully, albeit inoffensively, coexisted.

Rarely, though, do we really stop to interact with each other.

Rarely do we take the time to intentionally learn from each other.

Rarely do we notice how much those who came before us have to offer.

Hamilton Fish Park
New York Times article on Hamilton Fish Park from June 21, 1936.


The Purpose of Capital by Jed Emerson

Late last year, I was having breakfast with Jed Emerson in a noisy restaurant on the East Side of Manhattan.

I asked him what he had been up to lately and he smiled, paused meaningfully, and plunged under the table. He pulled out a massive manuscript and thudded it in front of him, nudging aside a small collection of plates, coffee and cutlery.

“This,” he said. “This is what I’ve been working on for the last three years.”

It was a few weeks before Jed’s new book, The Purpose of Capital, was published. When I read the book I realized that it is not just the product of three years of work, it is a life’s work.

For those of you who don’t know Jed, he has for decades been a leading thinker in impact investing (he coined the term Social Return on Investing, or SROI), and he advises many individual and institutional impact investors about their strategies. The decades he’s spent discussing how to deploy hundreds of millions of dollars  to create social impact have given Jed a rare view into the strengths and limits of our current paradigms of deploying capital for impact.

Ultimately, this experience has led Jed to ask some fundamental questions about what it is that we are trying to do here.

Even if you’re not familiar with the phrase “impact investing,” what Jed has to say might interest you. He is asking where the assumptions of our current financial system came from, and why we take them as a given.

Unfortunately, such broad and deep questions defy a pithy summary—so I won’t attempt one. The good news is that questions this big shouldn’t be addressed in just a few paragraphs since, borrowing from Jed’s quote of Peter Orner’s, part of the problem of modernity is that we are living through “an epidemic of glib conclusions” about the answers to the most basic and important questions.

The biggest problem, according to Jed, is that we think we’ve answered the big questions underlying our work. In Jed’s words:

A central issue for many of us in impact investing is that we are operating within an assumption we’ve answered the question, Why?…

The question of why we are investing….is rapidly answered with an interchangeable set of seemingly self-evident answers:

  • To minimize negative impacts while creating positive impacts;
  • To do well and good;
  • To align money and mission;
  • To respond to climate change;
  • To advance a positive response to social/environmental challenges

These are not, in and of themselves, wrong answers. But they are light responses to what are fundamentally deep and profound questions of personal meaning and purpose. They are responses to the “why question” offered with a lower-case “w.” They are the easy responses one would expect from a first round level of conversation on the topic at a cocktail party…

[They are responses that let us] off the hook of accountability, slightly modifying our investment practices and capital allocation assumptions so we may think all the better of our selves and sleep more soundly….[knowing our capital] is proudly parading in the light of day, bringing good things to good people—including bringing good, clean profits to our own good selves.

The Purpose of Capital is the opposite of a cocktail party answer to this question, taking seriously the question of accountability for our actions.

The book digs deep into history and philosophy, touching on topics as varied as: where and why our society came up with the separation of Self and Other (in the Axial Age from 800-200BCE); the distinction between sacred and profane; the roles that Locke and Descartes had in laying the foundation for modern thinking; and the near-religious nature of our faith in modern capitalism (one of countless gems in the book, “That economists can’t measure any of their quantities even to their own satisfaction, can explain neither prices nor the rate of interest and cannot even agree what money is, reminds us that we deal here with belief not science.”)

While I admit that the depths of Jed’s inquiry led me occasionally to lose my bearings—if economics, the social contract, the pillars of capitalism, and dualism itself are called into question, you’re not left with much to stand on—I found deep wisdom in his pulling back the curtain on an important, unstated truth: there are some elements of capitalism that cannot be questioned lest one be called a heretic, and yet, if the system is fundamentally failing us, we have no choice but to leave no stone unturned.

Here’s Jed quoting historian John Reiger:

There is a firm belief in the moral benevolence of the free-market system and private property, combined with a common acceptance among liberal, neoliberal and neoclassical theorists that this is the only system that works. This system takes on quasi-divine and transcendent qualities when it begins to block any and all alternatives and challenges.

If we all, collectively and irrespective of where we stand on the political spectrum, have quasi-divine faith in market economics as morally benevolent (and I think that we do), then Jed is an intentional heretic. He calls upon “those who call themselves impact investors and social entrepreneurs [to]… recognize ourselves as members of a new Reformation. We are members of a happy heretical tribe advancing fundamental aspects of our central faith and creating new metrics to explore its implications.”


Like most important works, The Purpose of Capital tells us that we have been asking the wrong questions. It argues that impact investing is not simply a tweak or even a slow evolution of an existing system. It is, potentially, a full reboot of our current system and the orthodoxies that underpin it.

Yet that is not how impact investing is traditionally viewed. Indeed, in practice impact investing presents itself as a mere (and mild) extension of traditional investing, with the assumption that most of what “we” learned in business school and at investment banks applies.

As Jed states:

As impact investing continues to go mainstream, we now see a plethora of traditional investment strategies, tools and practices applied with even greater complexity in the name of impact, and a decreasing amount of innovation in how capital is structured to transfer the actual power of money to the objects of our influence.

Over generations we have come to embrace a notion that…the expert at navigating financial analysis and handling an investment tool knows best what the purpose of that tool is. In truth, tools are merely means to an end and nothing more.

Acumen, where I’ve worked for the last 12 years, wrote a manifesto six years ago, and one of its core tenets is to see “investing as a means, not an end.” This simply-stated inversion of means and end is a truly radical act, and I can say with confidence that it is no small feat to take a well-honed, sacred tool and say, “this is just a tool.”

Operationalizing this shift this is far beyond the scope of even this long blog post, but Jed at least gives us guideposts about what our underlying purpose might be:

Impact investing is, first and foremost, an exploration of the purpose of capital…[one that] seeks to lay the foundation for the emergence of new 21st Century forms of economics and capitalism…

Impact investing is also about mindful money that integrates the power of presence with considered intentionality within capital flows throughout the world. It places resources within new structures, pumping life-affirming blood into new organizations and corporate forms. Impact investing is about pursuing an array of related strategies that promise to optimize total performance of financial returns with the generation of social and environmental impacts. It is integrated impact, not disconnected from life, but life promotion, life affirming and life creating capital.

When understood at this level of purpose and meaning, those who continually question whether or how one may achieve ‘competitive’ or ‘market rate’ returns on impact capital are skating on the surface as opposed to delving into the greater possibilities of how we might optimize the total performance of capital in the fullest sense of the term.

Hopefully these excerpts have whetted your appetite for Jed’s book, which is available as a free ebook for download or as a hardcover on Amazon. It’s not a light read, but if you’re intrigued by some of the bigger questions, Jed’s book should be on your list. (Bonus: Jed just let me know that the book is being translated into Mandarin and he’ll be doing a book tour in mainland China this fall.)

Before wrapping up, I’ll share a few reflections on Jed’s core thesis.

First, I fully agree with Jed that we, the impact investing community, have let ourselves off the hook. We act like we know (and are living) the ‘why’ of impact investing. We don’t know the why, and we’re certainly not living it. Not yet.

I do believe we have the potential, as a community, for revolutionary change—if we have the stomach for it. Our job is to be willing to fundamentally question all the norms and rules given to us by traditional investing. While many of them might still be useful, none of them should be taken as a given. The criterion we must apply in examining each of these rules are: does this rule serve the change we hope to make in the world? That is, in most cases and for most investing ‘rules,’ a tricky question to answer.

In order to do this properly, I believe we, as impact investors, must understand much more than how to deploy capital and build companies: we must be from and deeply connected to the communities in which we deploy capital; we must be students of the history of social change; we must be willing to engage in conversations about what makes a good society; and we must be interested in looking in the mirror about our own privilege, biases and blind spots, and begin to engage in the slow, meaningful work of self-transformation. These are all new muscles, but necessary ones if we endeavor to make lasting positive change.

Second, while I firmly believe in the potential that Jed describes as the purpose of capital, I am left wondering about the seemingly-individual transformational focus of the book: my relation to my capital and my (and our) sense-making and meaning. That’s the right place to start, but what happens to these individuals, and their lone voice(s), as they move out of sync with a broader system?

Meaning: I agree that the first step is for each individual impact investor to have more fundamental conversations about the purpose of their capital. However, when they act alone and against the tide of the larger system (including the larger impact investing system), will they have the leverage to make meaningful change? If the locus of the changes they make are primarily: 1. Personal (their values and worldview); and 2. Strategic (how they deploy capital), does that run the risk of omitting the larger levers like norms, story, the rules of the game, what’s considered “standard” impact investing products, the metrics for social performance, and, ultimately, expectations for how the system operates as a whole? Jed’s book itself starts to bridge the gap between the individual and the system, by reframing the broader narrative about what we’re all doing here in the first place.

Finally, to take things a step further, I did find myself a bit surprised that impact investing seemed to be both the question and the answer in the book. For a book willing to be so radical, I was waiting for the moment that Jed would to look at the whole thing and say, “and even if we do all of this, it alone won’t be enough.”

If our fundamental problem is that we misunderstand our relationship to money, can a sufficient solution be recasting our relationship to money in the context of higher (personal and societal) meaning?

Perhaps I’ve been coming across Anand Giridharas’ Winners Take All: The Elite Charade of Changing the World too often, but it does echo in the in the background of this conversation. Anand’s thesis is that our current system of philanthropy and impact investing only exist to reinforce existing power dynamics. This makes them a generosity charade that undermines social justice. Anand challenges us to be willing to look at the fundamental power dynamics that created inequality of wealth and power in the first place: Jeff Bezos pledging $2 billion to fight homelessness is well-intended, but wouldn’t it make much more sense for Jeff to stop using Amazon’s clout to avoid local taxation and to fight zoning laws that make housing unaffordable in Seattle?

Knowing Jed, who has a much longer and deeper background in social justice than I do, I expected him to conclude that that better deployment of capital by the few is but a small part in the much bigger reboot of capitalism that we need to create a more just and inclusive world. That, at least, is where I’d like to see the conversation go from here.

The quantum mechanics of intentions

Think about a Spotify playlist for a minute (or whatever music service you use).

Today it’s easy for a computer to put together a list of songs on a common theme or genre, and it’s just as easy to have that same computer create a playlist that weaves together a few different themes. Once you’ve got that – voila – you have a playlist that’s indistinguishable from one made for you by a friend.

What I can’t help but wonder is: what, specifically, is the difference between the two playlists – the one made by a machine and the one made with thought, care and intention? What role does the intention play when I listen to the music?

Is that intention real? Is it tangible? Does it have a weight and a meaning? Or is my experience listening to the music, potentially insulated from that intention, all that matters?

Of course, hard-to-experience intentions are everywhere, not just in playlists but in works of art, say, or even hidden within the work of an impact investor.

I bring this up because, lately, as impact investing veers towards the mainstream, it’s become common for some investors to wake up and say, “look at the impact my investments created! I’m an impact investor and I didn’t even know it!” And then it’s just as common for those whose cup runneth over with intention to say, “Not so fast…without intention you cannot be an impact investor.”

Who is right?

To be clear, intention alone is not enough. It needs to be coupled with material, measurable impact to mean something.

But, taking a half a step back, are we able to articulate why, exactly, intention matters?

The end customer of an intervention is likely to be oblivious to the intention (of the investor) that led to that experience. Doesn’t she simply experience – like the person listening to the next next song on a playlist – what she experiences? And if she doesn’t care about intention, why do we?

Here are some thoughts, meant to open not to close a conversation.

Intention might matter because you could learn about it later. When I discover from my friend why she put two songs together, or when I hear the story of a particular song’s meaning to her, that discovery creates meaning and connection between us. But this one falls apart in the absence of a real relationship between the two parties involved, so I don’t think it’s useful for the broader conversation.

Intention might matter because it influences current and future behavior. To argue this, you’d be saying that the fact that, in this case, the customer doesn’t experience intention doesn’t matter. What matters is that the person deploying capital (or running an NGO or a social enterprise) has a purpose guiding her actions. We believe that having purpose oriented towards positive change is likely, in the medium- and long-term, to result in more decisions and actions that create positive change (and less harm) than being agnostic or skeptical of making positive change. Similarly, the existence of this purpose could influence how durable the experienced impact is: if the going gets tough (profits down), we believe the person with intent will stick it out longer.

Intention might matter because it influences others. A person with intent inspires others to have a similar intent. A person with intent might cause those lacking intent to question why they don’t have it. It might also rally others to the cause.

Intention might matter in and of itself, in a way that is neither instrumental nor quantifiable. It just exists out there in the world in ways that are positive and worthwhile. Juju is a good thing, the light in me touches the light in you.

I find it surprising that I struggle to make a longer list, and hope that you have more to add (here, on social media, in an email to me, wherever).

The conclusion I’ve come to for now is that I’d always prefer that someone have intent than not. But at the same time I won’t go so far as to say that intent is a necessary ingredient to creating massive positive social change.

What do you think? Does intent matter? Where, why and how much? It is the roots of the tree, or one of many ingredients in a big stew: seemingly important, but not necessarily required?

Uncorrelated Impact Understanding

Not long ago, I was speaking to a group of sophisticated impact investors from across the spectrum: everything from fully liquid, market-beating financial return expectations to market builders focused on creating social impact who are open to a broader range of financial returns.

The focus of my talk was Acumen’s work on Lean Data, which is our industry-leading approach to gathering customer data at scale. We’re cracking the nut on using technology to give voice to tens of thousands of customers in ways that allow companies to serve them better. I believe that this will, over time, help the sector as a whole deploy more capital to more opportunities that have more social impact. It’s exciting.

But before digging in to the details of Lean Data, I started the talk with an assertion:

The seriousness with which you work to understand impact should be uncorrelated with your expectations around financial return.

I actually said this twice, because we’re so used to talking about correlations (positive or negative) between social impact and financial returns that I wanted to be very clear what I was, and was not, talking about.

My point is, if you say you are in the business of creating impact, then, irrespective of the instrument you use, the financial returns you expect, and the risk you’re willing to take, you’ve got to be serious about understanding impact.

Interestingly, I heard some resistance on this point. The resistance mostly took the form of “I know impact when I see it” or, “why would I waste time on this, it will just distract me from doing the real work?”

I believe there are some cases in which we really understand impact, but I believe those are the exception. Indeed we are so quick to say “we know enough” in a world in which we know shockingly little.

For example, take the $800 billion spent annually by the U.S. government. Peter Orszag, and Jim Nussle, who successively ran the U.S. Office of Management and Budget, write in Moneyball for Government that “Less than one dollar out of every $100 the federal government spends is backed by even the most basic evidence that money is being spent wisely.”

Less than $8 billion of the $800 billion spent annually by the U.S. government is backed “by even the most basic evidence?” Wow. Color me unpersuaded by the argument that we generally know enough.

I think what’s really going on is that we:

Overestimate how much we know

Overestimate the cost of getting great data – because approaches that came before Lean Data typically cost 100x as much

Create an artificial distinction between “creating customer value” and “creating social impact”

Assume that, no matter what anyone says, this is about marketing and dealing with funders, not about learning

Underestimate the value of what we can learn.

On top of this, I worry that we say too lightly that we’re in the business of creating social change, or we assume that this “caring about impact” stuff should be left to the folks who are on the frontiers of solving tough, challenging problems in innovative ways.

The truth is, we are quick to celebrate and advocate for more money walking through the “I (also) want to create social impact” door and then get awfully timid talking about whether that impact is getting created or, more broadly, how much we understand about the connection between the investment, the intervention and the impact it creates.

Caring about impact doesn’t mean you don’t understand how to make money. It doesn’t mean you’re not a serious investor. It doesn’t mean that you’re giving something up.

It’s simply saying: this is who I am, this is what I do. I’m in the business of creating massive positive change in the world. And I know how to do that better than anyone.

You can say all of those things and not blink for a second when someone asks you what your financial returns are going to be.

If we are in the business of change, then we have to be in the business of understanding how change happens.

More what?

Read or attend any report or gathering in impact investing and you’ll be told that the impact investing market is growing fast. At last week’s Global Steering Group on Impact Investing Summit, for example, we heard a lot about the market reaching a “tipping point.”

How do we know whether or not this is a good thing?

We cannot answer that question by counting dollars, or by tracking how many philanthropists, foundations, and banks talk about the impact investing funds they are deploying and the impact they intend to have.

All that tells us is about changes in language and norms for product packaging.

The only “mores” that matter are more capital going to more initiatives and companies that make more of a positive difference in more peoples’ lives.

Until we are tracking that accurately, we have no way to know that we are making progress, or even if we are headed in the right direction.

Cogito Ergo Sum Ego Creo Impulsum

Of all the charts in the GIIN’s 2017 Annual Impact Investor Survey report, the one that struck me the most was this one.

Of 200 impact investors surveyed, 98% say their impact is in line with or outperforming their expectations.

This in a sector in which almost no one actually measures impact, a sector that still debates whether having the intention to create impact is an important description of an “impact” investor.

It’s like we have our own version of cogito ergo sum: “I call myself an impact investor, therefore, ipso facto, I create impact.”



Tomorrow: Facebook Livestream of Acumen Debates

Tomorrow (Wednesday) evening, at 6:30pm Eastern Time, I’ll be participating in the third in a series of Acumen Debates hosted by EY. The Debates are a fun format that create a livelier conversation than your typical panel. And the good news is that we’re livestreaming the event, so even if you can make it you can tune in on Facebook.

The debate topic is: Do impact investors need to compromise between financial and social returns?

I’ll be arguing, along with Debra Schwartz from the MacArthur Foundation, that there are many cases where compromises can and should be made. We will be debating against Greg Shell from Bain Double Impact and Hilary Irby from Morgan Stanley’s Investing with Impact Initiative, in a conversation moderated by EY’s Jon Shepard.

Here’s the link to watch on Facebook Live.

While I won’t tip my hand and share the points I plan to make tomorrow night, I do have one hope for the conversation, and for our sector as a whole. I hope we can all agree that, irrespective of the financial returns they can generate, if someone is going to be a truly great impact investor, they have to be passionate about impact.

This may sound like a truism, so let me explain by way of example. I read Fred Wilson’s blog every day, and the posts that make me smile the most are the ones in which he geeks out about technology: when he switches from iOS back to Android, or talks about the various wireless speakers he’s fidgeting with at home, or wades into conversations about Bitcoin and the blockchain. It’s apparent to anyone reading that Fred loves technology. It fascinates him. It’s what he’s passionate about. And I’m sure he can’t help but learn about the latest gadgets, all the time.

In the same vein, to be an “impact” investor (and putting aside if anyone still likes that term, which no one seems to these days), I would hope we’d be passionate about impact. And by “impact” I mean actual, tangible changes in people’s lives or in the environment. This passion would manifest, like Fred’s, in a deep, insatiable curiosity about what makes people’s lives better, and what leverage points might exist to make large-scale, lasting change. It would come across as profound attention being paid to improvements that happen in the real world, with all other indicators – including financial returns, which very well could be high – simply seen as means to an end.

These days, when I take part in and listen to conversations in our sector, I hear the most passion about funds, about returns, about fund structures, and about capital flows. It’s striking how comfortable we are talking about money. I’m looking forward to more days in which the passion we express, the deep curiosity we manifest, the conversations we can’t stop having, start and end with people, with communities, with what constrains and enables their lives.


What impact investing can learn from Vanguard’s 7x Growth

The Ford Foundation’s recent announcement of its plan to invest up to $1 Billion of its endowment into impact investments is yet another chance to ask if, or when, impact investing will become mainstream.

And by “mainstream” I mean normal.

One idea that’s been on my mind: rather than search for answers deep in the heart and soul of impact investing, we should look at the history of index funds.

The foundational academic article about indexing as an investment strategy was written 50 years ago, in a piece penned in 1966 by William Sharpe in The Journal of Business. Sharpe’s conclusion, among others, was that “The results tend to support the cynics: good performance is associated with low expense ratio.” Not shocking, but this was the opposite of the core logic of the mutual fund industry, one which justified high expenses by supposedly even higher performance.

Nine years after Sharpe’s article, in 1975, John Bogle founded the Vanguard Group, and in 1976 he launched Vanguard 500 (VFINX).  VFINX was and is a low-cost fund that mirrors the S&P 500. Investors in the fund are“buying” the entire S&P for a very low cost. The theory was simple: you won’t beat the S&P in the long run, so the smart thing to do is to get the S&P’s returns with as low an expense ratio as possible.

This one fund was a bet that, over time, investors would come to understand that consistently beating the market with an active stock-picking strategy is hard, and that beating the market by enough to make up for the cost of active management is nearly impossible.

(For some simple math to support this conclusion, think of it this way: historic equity returns are about 7% a year, and most mutual funds charge around 1.5% in fees (if not more). This means you’re eating up more than 20% of your return every year with the fees paid to an active manager. The assets that manager invests in needs to beat the market by more than 20% every year, forever, just to match the performance of an indexed fund. It turns out that this is very hard to do. A 1991 article by Sharpe drilled the point home: “To repeat: Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.” Now, this would be obvious if fund fees were sold as “20% of total expected return” instead of “1.5% of invested capital.” But I digress.)

Despite the analytical support of academics like Sharpe and others, Bogle and the Vanguard Group were often mocked, and even called un-American, for their tortoise-like strategy of mirroring the broader market instead of trying to beat it, all while charging investors spectacularly low fees. This strategy cut deeply against the story, heavily marketed by the big banks, that mutual fund managers added value to their clients, value that was more than offset by the fees they charged. The mutual fund industry exists to do many things, and one of those things to preserve itself. There was a lot to be lost with the growth of indexing, not only huge profits but also the very American story that it’s better to bet on the chance of winning than it is to be certain not to lose. These two reasons – marketing power and unchecked investor naiveté – are why it took so long for the facts to prevail.

And yet, despite institutional and cultural resistance, time is a powerful tool. Indexing has grown, ever so slowly, as a proportion of the market over the last four decades, reaching 20% of U.S. equity mutual fund assets in 2014. More interesting still, in the last three years, Vanguard’s assets under management have grown faster than the rest of the mutual fund industry combined. That’s right, according to a recent New York Times article, in the last three years, the entire mutual fund industry, more than 4,000 firms, took in $97 billion, and Vanguard took in $823 billion. Vanguard now manages $4.2 trillion in mutual fund assets, having quadrupled its assets under management in the last 7 years.

If this is analogous to what it will take to “mainstream” impact investing, then we have a few lessons to take away.

First, this is a long road we are walking. So let’s be prepared for a marathon, not a sprint. This means it’s time to stop, as we enter the end of our first decade, pretending that the tipping point is just around the corner.

Second, better data and facts, even for something as easily analyzed as public mutual fund returns, are hard to come by, easy to dispute, and alone they are not enough to tip the scales.

Third, economic incentives are powerfully aligned for the gatekeepers to keep things the way they are. Despite this, things can shift massively if clients speak loudly and uniformly.

Fourth, even a robust story that shouted “this is a better way to make money!” took 50 years to penetrate the prevailing wisdom. We’re twisting ourselves into knots to publish a handful of reports saying there aren’t financial trade-offs between impact investing and other approaches. It’s great to know that is possible. But data alone doesn’t tip the scales, what’s needed is a shift in mindset and a better story. And “we can make as much money as you” strikes me, in the face of the history of indexing, as weak sauce.

Finally, a request. I wasn’t able to uncover a proper analysis of the key milestones in the growth of indexing, but I’d love to find one. For anyone interested in growing the share of investment capital that takes social returns, stakeholders, the long-term view, the environment…anything beyond traditional thinking into account, I suspect that the rocky history of indexing holds more than a few clues about the pitfalls we can avoid and, hopefully, provides a map for shortening our 50-year journey just a bit. The world needs us to move faster than that.

The Third Plate and the Future of Impact Investing

Our food system is broken. While we have solved the problem of how to produce lots of calories for a low direct cost, this same food system has resulted in an obesity epidemic; it is why nearly 10% of the U.S. population has Type 2 diabetes; and, most recently, it likely is playing a role in the huge spike in colon cancer for people in their 30s and 40s.

What do we do about it?

I recently read Dan Barber’s The Third Plate. Dan is a famous chef, the co-owner of the acclaimed restaurants Blue Hill and Blue Hill at Stone Barns. The book’s title is Dan’s answer to the question, “what will the typical American dinner plate look like in 35 years?”

In response, Dan sketched three plates to show the evolution he imagines: the first plate, from the 1960s, had a large, corn-fed steak with a small side of industrial farmed vegetables; the second, from today, had a farm-to-table organic grass-fed steak with a side of organic heirloom carrots; and the third, futuristic plate, had a “steak” made of carrots garnished with a sauce made from leftover beef trimmings.

Dan’s point, with this third plate, is that the current high-end, farm-to-table, farmers’ market approach to food is a luxurious niche that doesn’t address the core issues of the food system: while the foods themselves may be natural and healthy, they are, in Dan’s words, “often ecologically demanding and expensive to grow,” and, by definition, they work at the edges of the system as a whole.

(Cue: impact investing theme music)

The Third Plate is Dan’s exploration of a better solution, a deep dive into whether the carrot-made steak really was the future of food, and what it would take to get there. The book recounts his exploration of Soil, Land, Sea and Seed – the book’s four sections – and what the future of each of these food categories might be.

Like all good narratives, this one is told through people. Each of the book’s many protagonists – whether Klaas Martens, a farmer in upstate New York, Miguel Medialdea, a Spanish biologist, Steve Jones, a seed breeder at Washington State University, or many others – are all rebels of sorts who reach the unavoidable conclusion that whether you’re growing a stalk of wheat, raising an acorn-fed pig, or cultivating the world’s most delicious fish, the only way to produce truly outstanding food is to create food that is in harmony with a broader food system.

Take Miguel Medialdea, the Spanish biologist who raises a bass so delicious that the first one Dan Barber tastes, which, unfortunately, was overcooked, is described thus:

The fish was incredible. Even overcooked and tough – even D.O.A. (“dead on arrival”), as line cooks like to say when a fillet has seen too much heat – it made my mouth water. It was so richly flavored, you’d be forgiven for comparing it to a slowly cooked shoulder of lamb or a braised beef short rib. I’d never known bass could be so delicious.

How does Miguel Medialdea’s Venta de la Palma produce such a bass? It’s a complex system of interplay between salt and fresh water, an 80,000 acre fish farm which feels like a loosely managed system in which Miguel has set up the major pieces, nudges things here and there, and then lets the system do most of the work.

I won’t attempt to describe all of the inner workings of Venta de la Palma – Dan does it better. But I was struck by a moment in Dan’s conversation with Miguel at the end of another meal, in which Dan tries to uncover the secret of what could make a bass so delicious. Was it the scale of the property, which meant no overcrowding and, therefore, almost no disease or parasites? Was it the intricate canal system, which provides a natural filtration system against pollution?

To try to make sense of it all, Dan casually asks Miguel how long it takes for one of his bass to mature.

‘Thirty months,’ Miguel muttered, seemingly to no one in particular.

‘Thirty months!’ I said. ‘It takes two and a half years to raise…a bass?’

‘Yes, that’s the average, which is more than twice the aquaculture average.’

I asked how the company could make money.

‘So far there’s profit, enough to keep us working at an optimum, not a maximum.’

This was the kind of answer Miguel, and Klaas, and Steve Jones kept on giving: that one of the fundamental constraints that had to shift in order to operate a healthy food system is a move from maximum profit to optimum profit. They propose that the only way to create the world’s best food is by creating and maintain a system in balance, and each one of them concludes that such a system is not one that is optimized for extracting every last bit of value that they, personally, can squeeze out of it.

To illustrate the point, at another juncture in this conversation, Dan is shocked by the 30,000-strong flamingo population on the farm. Since these flamingos eat 20% of the farm’s fish and fish eggs, wasn’t their presence a bad thing?

Miguel shook his head slowly, with the same calm acceptance shown in the face of losing half of his goose eggs to hawks.

“‘We’re farming extensively, not intensively,’ he said. ‘This is the ecological network. The flamingos eat the shrimp, the shrimp eat the phytoplankton. So the pinker the bellies, the better the system.’ The quality of the relationships matters more than the quantity of the catch.”

If Miguel’s job is to optimize the overall health of the system, then key indicators of success are the data, like the pinkness of flamingos’ bellies, that tell you about systemic health. Profit may result from this system, but the system is not engineered primarily to create profit.

What a fantastical notion, that profit might be a result and not the goal.

The parallels to our economic system are, I hope, obvious. When I compare the dialogue within impact investing with the conversations happening in the food system, I’m struck by how much we, in impact investing, have so far failed to have a rich, nuanced conversation about where profits fit in the new system we say we aim to create. In my experience, all conversations about profits – or returns – in impact investing quickly devolve into discussion of the financial return a given investment or strategy produces, with both sides losing when they debate the “right” level of return without a broader conversation about whether this return is a result of or the ultimate purpose of the investment.

The much deeper conversation we need to have is around whether to be a successful impact investor, or to be a successful player in an ecosystem funded by impact investments, one needs to have the willingness and the capacity to optimize for the health of the system, and not just one of its outputs (profits, or returns). Meet any of the colorful characters in Dan’s book and you come across rebellious tinkerers who bristle at the status quo at every turn, because they’ve learned, through a life’s worth of experience, that the traditional food system is broken.

Do we have a similarly clear point of view about whether the mainstream capitalist system works or is broken? Do we believe, as we watch everyone from Bain Capital to TPG to the Ford Foundation commit billions of dollars to impact investing, that we can create the kind of deep change we know the world needs if we are unwilling to confront this question head on? Are social entrepreneurs and impact investors the equivalent of food revolutionaries who see that we have no choice but to upend the whole system, or are we hangers-on to the edges of mainstream capitalism, excited to build out our small terrariums without ever questioning the bigger ecosystem?

My belief is that our breakthroughs will only come once we start saying out loud that our ultimate goal is to build a global economic system that is extensive, not intensive. And then, once we recognize that such systems can be built, to ask ourselves what it would take to move that from niche to mainstream.

My belief is that to get from here to there, we need more folks who are willing to think like Miguel. These are people who can deconstruct and reconstruct a food system (or any other system) and, in so doing, can reprioritize the factors they’ve been told to optimize. These are people who are willing to walk the long, hard, stupid road from nowhere to somewhere. These are people who won’t stop tinkering and experimenting and learning and failing and doing it all over again…until, one day, they can consistently produce an output that is better than anything that’s come before it and that enriches the health of all the players in that system.

It’s OK for us to acknowledge that we don’t yet know the right indicators of systemic health, as long as we say that we’re willing to put ourselves on the line to create them.

We start by asking: what is our equivalent of the pinkness of flamingo bellies?

Matthew Weatherley-White on How to Turn the Capital Markets Upside Down

In further proof that most important innovation involves the reassembling of existing ideas in new, surprising and powerful ways, I’d encourage you to check out this talk by Matthew Weatherley-White at SOCAP 2016.

Matthew’s big idea goes something like this:

In Austria, organ donation rates top 90%, in Germany they’re below 14%. Why? Because in one you have to opt in to donating your organs, and in one you need to opt out. And what could be more important, or more personal, than organ donation?

So maybe the way to make investing with a purpose mainstream is to stop fighting to change people’s minds and instead make it a default strategy.


[If you’re not seeing the embedded video below, you can click here to see it.]

If I were to describe the video in joke form, it would go something like…

Q: What do the Twilight Zone, organ donation and ESG investing have in common?

A: ???

(If you can make that into an actual joke, you win a prize.)