Michael Milken shares his (bullish) take on impact investing in this great interview with the GIIN. He feels that impact investing is a necessary part of the equation for a better future for two reasons: scale and sustainability. First, there’s not enough philanthropy money to solve all our problems: in his words, "we need to redirect the flows of trillions of dollars, not billions." And his second point, which I firmly agree with, is that increasing access to capital is a great first step, but to be long-term sustainable, you need to make returns.
Milken makes a great point that with today’s bargain basement interest rates, impact investments face the lowest hurdle they ever will (could!) as alternative investments. He cites over $30 trillion in assets that are currently earning less than 1% as an argument that an investment opportunity with social impact doesn’t have to offer very high financial returns to be an appealing choice.
I’m also partial to Milken’s emphasis on human capital, and specifically, the power of investments made in businesses that support kids from ages 0-5. His belief that people matter is reflected both in terms of the people who run his portfolio companies as well as the work they do. He calls on investors to, "divert and change the flow of capital to people who have ability." He also puts his money behind businesses that offer education, like Knowledge Universe, which runs early childhood development centers around the world.
Milken says his primary concern about the growth of impact investing is the ability to create an investment model that is cost effective enough to scale. The fear, which many share at this point in the sector’s growth, is that impact investments are too costly to become common practice because of their higher due diligence costs and smaller deal sizes.
Unfortunately, the Milken Institute’s 2013 Global Conference agenda shows fewer impact investing sessions than they held last year. I’m also sorry that his office puts impact investing in their Philanthropy track rather than mainstreaming it with finance. That said, we can safely add Milken to the savvy, prominent, and uber-wealthy supporters of impact investing: he told the GIIN, "At the end of the day, doing good is good business."