Bankers ride boom in social enterprises
Investing in public service could generate healthy returns with focus on mass market
Putting private capital to public service is booming in Asia, and some investment bankers are quitting their high-profile jobs to support "clean and green" enterprises.
The switch does not mean forsaking the pursuit of good investment returns, says Eric Savage, the co-founder and president of Unitus Capital. Savage previously headed the power and infrastructure desk at Citigroup's Salomon Smith Barney unit in Hong Kong.
Returns from investing in growth-stage social enterprises could be as lucrative as from investing in other projects, he said.
While venture capital investors aim for a 25 per cent annual internal rate of return on their investment by the time they exit, the historical record shows an average return of just 3 per cent.
"Social enterprise funds are at an early stage. But as far as I know, some funds are able to deliver above-average returns. Generally, they can do better than normal funds because they've been investing in companies that are not correlated to the risks in Wall Street," Savage said.
Another banker making the switch is En Lee, formerly an executive director at Goldman Sachs and now a director at Impact Investment Exchange Asia. Lee is setting up a stock exchange to help social enterprises get listed in order to attract funds and even retail investors.
Savage moved to India in 2007 and helped Unitus raise more than US$750 million for various social businesses, such as affordable housing developers, micro-finance companies as well as agricultural and education firms.
"We only focus on companies that help people at the bottom of a pyramid and help poor families," he said.
Yet helping those companies did not mean this was a money-losing business, he argued. "They are definitely profitable. In most cases, those companies have a stronger product and less competition as they focus on the mass market."
Investors targeting early-stage companies generally sought to invest in telecommunications and e-commerce firms, making it "highly challenging" to raise capital for companies in other areas, said Savage. From a company's perspective, the biggest challenge generally lies in human resources.