2013-05-10

Using Investing Acumen To Put Dollars Into Impact

Bill Ackman is very wealthy. He’s trying to put that wealth to good use not through charity, but through investing it in high-impact organizations. The trick is finding the ones that both give returns and make a difference.

Bill Ackman, one of Wall Street’s most influential hedge fund managers is pioneering a relatively young investment movement that mixes business strategy with philanthropy, yielding massive impact in the world. As the founder and CEO of Pershing Square Capital Management and one of the most prominent players in field, he is applying his entrepreneurial talents to work in the social good sector, setting a new standard for impact investing, and helping to solve some of the world’s most difficult problems.

"Which world would you rather live in?" he asks. "A world where the people that are most fortunate spend their time benefiting themselves or a world where the people in a position to do so work in a way to help those who aren’t able to do so?"

In his youth, Ackman experimented with traditional volunteering opportunities and though each project resonated positively, it made him question if he was adding the most value to the organizations. "My personal business plan from the time I was young was to be really successful and accumulate resources that I could reallocate in a way that I think makes the most sense," he says.

So far he’s stayed true to this plan, starting a successful hedge fund and engaging in notable charitable activity. He’s served on the boards of numerous nonprofits, graciously signed the Giving Pledge and he was even recognized as one of the most generous donors in the U.S.

In seven years time, The Pershing Square Foundation has made significant investments in innovative grantees, such as the One Acre Fund. Founded by Andrew Youn, the nonprofit is rethinking the solution to hunger in Africa by investing in one-acre farmers. By providing farming families with seeds, education, and marketing facilitation in exchange for a share of then-increased output, the fund is helping to double farmers’ income.

Ackman was drawn to Youn’s business model for getting people out of poverty for a relatively small amount of money compared to the return. He is proud to say that the One Acre Fund is one of his most impactful investments, in terms of helping others in the world. Since its founding, the fund has served 137,000 families in Kenya, Rwanda, and Burundi, increasing farmer income by about 100% per acre, with 97% of farmers repaying program fees and covering 84% of field costs (One Acre Fund Report).

Ackman also believes that one of the most effective ways for him to contribute is by re-allocating his assets in the best way he knows how, investing in high-impact organizations. When impact investments are financially successful, they both bring the most social good and allow you (or your foundation) to reinvest the profits to achieve even greater social good. There is not significant cataloged success in the area but that doesn’t stop Ackman from rewarding brilliant ideas with substantial financial support from The Pershing Square Foundation. Since launching in 2006 the foundation has dedicated capital to the most innovative solutions to the roots of poverty, including organizations that address economic development, education, health care, the arts and urban development.

This is the latest post in a series on generosity, in conjunction with Catchafire.

Ackman approaches potential investments carefully. First he considers whether or not he believes the organization is solving a problem that needs to be solved. If he does, Ackman next asks a tough question that many are not accustomed to hearing: Can this problem be solved with a for-profit solution?

He is more interested in the for-profit social mission model because, from his experience, for-profits are structurally designed in a more effective way. Not having to constantly rely on donors makes a for-profit self-sustaining, enabling it to act on more opportunities. Employees are paid market salary and in successful companies their interests are aligned with the founders, providing an extra motivator. The boards tend to be more engaged and the company has an easier way of measuring its results.

As both sides of Pershing Square continue to grow, Ackman remains dedicated to scaling this niche of for-profit social mission solutions to the world’s problems. With social entrepreneurship increasing in popularity amongst business students, and with a young workforce becoming fixated on social impact, he is at the forefront of combining business acumen with social mission.

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