Innovation

Product Innovation to Open Up the Capital Floodgates

November 5, 2019

1998

The IFC has established a set of operating principles developed with fund managers and DFIs to harmonize standards around impact investing and lower the barriers to entry for the sector. Sixty investment groups have signed up for the new code. Collectively, they represent around $350 billion in assets managed in impact investment funds and products. However, such code does not guarantee that trillions will be allocated to impact investing.

What’s required is a systematic market approach that enables impact-driven institutional investors to participate with minimal friction. A case study, though dissimilar in risk-return characteristics, is the crypto market. 2018 was a volatile year as $700 billion was wiped off the market capitalization. New instruments such as the Grayscale Bitcoin Trust, the first publicly quoted open-ended investment fund for bitcoins, enabled investors to gain exposure to the price movement of bitcoin through a traditional investment vehicle, without the challenges of buying, storing and safekeeping bitcoins. Grayscale has become the world’s largest digital currency asset manager. As of April 2019, their assets under management was $1.1 billion. How is it possible that a company of 11 employees could manage over a $1 billion and open up the flood gate?

Solving the Capital Issue is Possible

We need to stop the madness of door-to-door selling to institutional investors. We can’t change institutional investors overnight. However, a systematic approach to product innovation can open up the floodgates for early adopters across the institutional investment community to allocate billions to trillions needed to achieve the SDGs.

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