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Investing in our Changing World…Impact Investment for the long term

By June 25, 2019 No Comments

The World moves on…it changes every day and history has striking ways of backing it up. Who now remembers Armstrong Rubber, Cone Mills and Pacific Vegetable Oil? All were once corporate giants and all were in the Fortune 500 sixty years ago: but none are around today. Studebaker and Detroit Steel might still be here from sixty years ago, but only by the skin of their teeth and they find themselves surrounded by shiny Googles, Ubers and Facebooks. So ask yourself this: where will they all be in another sixty years? By then we’ll probably need the footnote of a book to tell us what Remainers were, what The Spice Girls did (answers on a postcard) and who Donald Trump and the Backstop were (it’s not a Rhythm and Blues Band). Yes, history may yet remember Google and Uber and Facebook unkindly.

In fact, only 60 of 1955’s Fortune 500 corporate titans were still in the list by 2018: less than 12% of the starting line up. And if you go back further the figure is even more striking: of the top 100 Global companies in 1900, only seven are still trading (and of these, US Steel and Westinghouse are pale shadows of their former selves). According to a 2016 Report from Innosight the average stay for a company in the S&P 500 Index will be just 14 years by 2026 (compared with 33 years in 1965), on which basis half of the current constituents will be turfed out within ten years.

That’s some churn rate, and it’s why Innosight have also predicted that the coming decade will be “the most turbulent in modern history” for developed western economies.

And if we’ve learned anything from the so-called “creative destruction” now seemingly endemic in western economies after the 2008 credit crisis, it’s that market disruption on this scale is likely to be driven even faster in future by a downward spiral of lower consumer prices, lower labour rates and lower interest rates (you may have noticed some of those happening already). That’s why economists are so prone to bore their neighbours at dinner parties these days by droning on about the consumer benefits of “Schumpeterian creative destruction”. After all, what’s not to like about lower prices: even if they might not help Google and Facebook make the cut in twenty years time?

Well, quite a lot actually.

Staying alive commercially by pricing out the competition and engaging in deeper discounting spirals is not a healthy economic model: ask Carillion, a global conglomerate that ended up with multi billion pound turnovers but operating margins as slender as 0.07%, so that it was only a question of time before bankruptcy was to lay its heavy hand on the enterprise. So too those household names including BHS, Woolworths and, but for the grace of his haircut, Sir Phillip Green’s Acadia Group. All of them obsessed with short-term survival at the price of long-term economic logic.

 Impact Investment Strategies set out to reverse this sort of short term, short-lived economic mind-set.

 Businesses that adopt Impact Investment strategies will treat the enterprise almost as a living organism: constantly interacting and re-reacting with its environment, local communities and the wider public, as well as its workforce and adapting all the time to reduce negative impacts and enhance positives. By prioritising each distinct element as part of an evolving business dynamic, these businesses are much more likely to succeed over the long term too: which is good for investors, good for communities and good for the wider environment as well.

Take note Sir Philip…

The African Impact Fund aims to make use of Impact Investment Strategies to build on the exciting opportunities currently offered by sub-Saharan African Markets, delivering long-term capital growth as well as income distribution. The Fund’s objective is to work to address social and environmental challenges whilst at the same time delivering sustainable profits for its investors.

Executive Overview

 Change is, indeed, all around us: and recent history demonstrates that the fastest growing economies are likely to emerge in three distinct phases. First a period of entrenchment for ten years or so, as economic and political factors create the optimal conditions for growth: then, a ten-year period of readjustment as markets stabilise to accommodate the changes of the previous decade, followed by period of explosive and sustained growth.

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