Impact Investing for the Rest of Us
Ron D. Cordes spent career No. 1 striving to amass a fortune -- and he succeeded. He built AssetMark Investment Services, a firm he co-founded, into a nationwide company with 400 employees and $9 billion in client assets. In 2006 Cordes and two partners sold out to Genworth Financial Wealth Management for $230 million.
Now the 52-year-old entrepreneur is aiming to be equally successful in a new, wholly different career mission: giving money away. Charity sounds easy enough, but Cordes admits he was "a little bit terrified" when he and his wife, Marty, created the nonprofit Cordes Foundation immediately after the Genworth deal. They were wary of squandering the war chest. The challenge, he says, was "trying to figure out, when you're not the Gates Foundation, and you have several less zeroes on your balance sheet, how you can really have an impact."
The answer, Cordes decided, lay in a new style of managing wealth -- a concept known as impact investing, first pioneered in the 1970s, when it was so rarely practiced that there wasn't even a name for it. Only recently has the idea begun to catch on among major charitable foundations and a growing number of financial advisors, fund managers and even ordinary investors, in part because a relatively small number of game-changers -- Cordes among them -- have embraced the concept and set out to change the face of American philanthropy.
Impact investing, like traditional investing, is intended to bring a financial return. Instead of buying the usual types of stocks, bonds and real estate, however, impact investors sink their dollars into companies or organizations known to be accomplishing some social good, such as developing clean energy, making loans to small-business owners in impoverished nations or constructing affordable housing in depressed urban neighborhoods.
In theory, the investments generate a return even while they help to address significant problems both at home and abroad.
The Cordes Foundation adopted the strategy because the traditional investment approach just wasn't accomplishing enough, Cordes says. None of the foundation's core wealth was helping anyone in need. Only the annual earnings from that wealth -- a comparatively puny slice of the pie -- was going to worthy causes.
"We were frustrated by the fact that the 5, 6 or 7 percent a year that we gave away was dwarfed by the other 95 percent that was being invested," he says. "I started looking at that and saying, 'Why can't we have a similar impact with the other 95 percent?'"
In 2007, Cordes persuaded his board of directors to shift one-fifth of the foundation's wealth into impact investments. A good share of it, he says, was parceled out as micro-loans to businesses in developing countries. The cash helped to rev up burgeoning markets, and shopkeepers generally made good on repaying the loans. The strong return from the impact investments bolstered the foundation's ability to give away other donations, Cordes says.
"That 20 percent," he says of the impact investments, "actually out-performed everything else in our portfolio."
The triumph set a clear direction for both the foundation -- which doubled its commitment to impact investing -- and for Cordes, who has emerged as one of the concept's most vocal advocates, a self-proclaimed "pro bono evangelist" for the cause. Cordes aims the pitch at more than just charitable institutions. His target is anyone with money to invest, from the managers of giant pension funds to work-a-day wage-earners.
His travel schedule is grueling. He speaks at about 20 conferences and events each year and divides the rest of his time between homes in New York and the San Francisco Bay area. After appearances at Duke and Columbia universities, Cordes traveled to Washington, D.C., last month to address the Global Philanthropy Forum, joining a line-up that included former British Prime Minister Tony Blair. Then he flew to Los Angeles for the Milken Institute Global Conference, where he joined an April 30 panel (shown below) on encore careers.
Cordes used the platform to talk about setting goals in a second-act career and explained how he runs his organization like "an R&D laboratory" for impact investing.
"He's thrown himself into the idea of creating a better world for future generations," says Marc Freedman, founder and CEO of the baby boomer think tank Civic Ventures, who participated in the same panel.
"He's the embodiment of someone who's taken skills from an earlier chapter and is applying them to new ends," Freedman says. "It's not really a reinvention of himself but rather a bringing together of earlier expertise and lifelong passions and a desire to accomplish something in the next part of life. He has a kind of clarifying intelligence. He makes everyone around him feel smarter and be smarter -- and that's a wonderful gift."
Unlike some impact investing boosters, Cordes has the entrepreneurial pedigree to reach and influence people in the upper echelons of finance, says Antony Bugg-Levine, CEO of the New York-based Nonprofit Finance Fund and co-author of the book Impact Investing: Transforming How We Make Money While Making a Difference.
"Because he's speaking to people who recognize him as a peer, he's had the ability to open up doors," Bugg-Levine says. "He has a level of credibility you need to bring these ideas into the mainstream."
Considering the amount of wealth stashed away in America's pension funds, stock portfolios, individual 401(k) accounts and real estate holdings, impact investing "is a very, very profound idea," Bugg-Levine says.
Invested U.S. wealth now totals about $37 trillion, according to Cordes, of which only an "infinitesimal" amount accomplishes any philanthropic purpose. However, that could change. Over the next decade, anywhere from $500 billion to $1 trillion of that capital could shift into impact investing, he says, citing studies by J.P. Morgan and other financial firms.
"We're trying to open up the big pockets," Cordes says.
In a survey that Cordes conducted, about half of affluent investors said they liked the idea of investing philanthropically, but very few had even considered the option, mainly because their financial advisors never explained the possibilities, Cordes says. Even those who wanted to make impact investments had a difficult time finding out where to do it.
To try to change that, Cordes and his organization teamed up with the Calvert Social Investment Foundation two years ago to form Impact Assets, a San Francisco-based nonprofit whose main purpose is to connect investors with socially conscious projects in need of investment. Cordes also continues to expand his network of connections through the Clinton Global Initiative (CGI), serving as the point man in a series of high-level meetings and telephone conferences about social and environmental investing, says Katrina Ngo, director of CGI America, a division of the nonprofit that focuses on U.S. economic recovery.
"We've always had a full room whenever we've convened," Ngo says. "It's always a topic people seem interested in."
"Ron has been incredibly committed and engaged in broadening this market," says Amit Bouri, director of strategy and development for the Global Impact Investing Network, a New York-based organization that grew out of the work of the Rockefeller Foundation. Since forming in 2009, the network has attracted 48 large member institutions; two of them, the TIAA-CREF pension fund and the Bill & Melinda Gates Foundation, have authorized up to $1 billion apiece in impact investing, Bouri says.
Wonderful developments have been happening at all levels, Cordes notes. Nonprofit organizations such as Kiva enable individuals to make micro-loans as small as $25 throughout the world -- and all online.
Building his own financial empire was one thing, but the greater reward is seeing the money make a difference for others, Cordes says.
"What I've found is I've never had so much fun," he says. "I would say this is the most meaningful and satisfying thing I've ever done."
Read more: Impact Investing Goes Small-Time