00:00This is The Conscious Investor presented by Nuveen.
00:02I'm here with Rekha Unithan, the Impact Investing Portfolio Manager for Nuveen.
00:07So you manage a nearly billion dollar portfolio focused on impact investing.
00:12What exactly is impact investing and how does it differ from socially responsible investing?
00:16So impact investing is one facet of the socially responsible investing spectrum, if you will.
00:22Impact investors are looking for intentional outcome orientation with respect to the investments
00:27they choose to make.
00:29It's providing a certain good or service to a part of the population that may be largely
00:35underserved.
00:36It may be innovation using technology.
00:39It may be looking at themes like climate change and energy efficiency to create a product or
00:44services that doesn't exist today or needs to be improved upon.
00:48So can you give me some examples of the types of deals that you're looking at for your portfolio?
00:53Yeah, I can give you two examples that make up a big part of our portfolio strategy.
00:57In the United States, affordable housing is a big area of focus for us, and really it's
01:03preserving existing affordable housing stock.
01:06One in four households in the United States does not have access to affordable housing, i.e.
01:12they're paying more than 30% of their income on rents, which basically means they're spending
01:18less on other important things like education, health, access to good and healthy food.
01:23And so affordable housing preservation is taking existing affordable housing stock and keeping
01:28it affordable for the long term.
01:30making those apartments available to families that are working, that are fabric of our society,
01:37creating a safe place for them to live and for those communities to thrive.
01:41And what does an investment in that look like?
01:44Like who are you giving money to and what are they doing with it?
01:47And then how do you measure what success they're having in keeping that housing affordable?
01:52Yeah.
01:53So an investment in affordable housing is actually investment in the property itself.
01:57It's finding the operators and developers who are focused on this asset class, who believe
02:02that there is an attractive investment story there, who believe that the real estate itself
02:08is very attractive because it's built in a way that's sustainable, that can be preserved
02:15using energy retrofits as a way to make it more efficient.
02:18So it's investment, it's buying the actual property, it's managing the property efficiently, it's
02:24like I said, doing energy retrofits where possible.
02:27It's also creating a community space and residence services for the tenants.
02:31So affordable housing will often have underutilized community rooms.
02:35So if it's a family focused property, it's a place where after school programs can be conducted
02:40so the kids getting off the school bus at four o'clock have a place to go.
02:43So if it's a senior focused affordable housing property, that's creating ways for them, for
02:50the seniors to engage both with each other, as well as get access to services where it's
02:55about meals on wheels or libraries or things like that.
02:59And is there a tradeoff between how much money you can make on something like that and how
03:03much good you can do?
03:04And how do you define success?
03:06How do you monitor these investments?
03:09In our view, we are not making investments that have any conversation about tradeoff.
03:13Both opportunities need to exist.
03:16So there needs to be an intentional focus on outcome creation.
03:18In this case, retaining existing affordable housing stock and making it available.
03:23And then financial returns, which is a big part in affordable housing is driven by rental
03:28income.
03:28So cash on cash return from maintaining these properties and collecting rents.
03:32And then over the long term, holding these properties and selling them to another buyer
03:37who will preserve them.
03:38Right.
03:39So financial return and impact outcomes for us go hand in hand.
03:42With respect to metrics that we would look to monitor, for affordable housing, for instance,
03:49is the percentage of income these tenants are paying for rent.
03:53The energy retrofits that have been put in place in those properties to make them more
03:58efficient.
03:59The walk score and the transit scores of the properties.
04:03So where are these properties located relative to access to transit, good schools, et cetera.
04:08And can you give me an example of something else that's in your portfolio that is a good
04:12example of being able to make money and also benefit a community inside or outside the U.S.?
04:17Oh, absolutely.
04:18So 40% of our portfolio is in emerging and frontier markets.
04:23Economies where there's a ton of growth.
04:26And financial inclusion is one theme that really plays out in our portfolio.
04:31Essentially it's providing access to credit savings insurance to marginalized groups.
04:37So groups that are not part of the mainstream financial systems.
04:40So one might have heard of the concept of microfinance, which is essentially providing credit
04:44to groups of women who we believe are credit worthy, but don't have access to bank accounts
04:49and credit.
04:50And so that's one type of investment in our portfolio where it's group lending, it's groups
04:55of women who take out a loan, who are responsible for repayment of that loan, and then use that
05:00for working capital for their small enterprises, which they often operate out of their own homes.
05:04So that's one example of an impact investment.
05:08Another recent investment we made is in the remittance space.
05:11So migrant populations living, who leave their home countries from Sub-Saharan Africa or Southeast
05:16Asia and move to developed nations like the U.S. or the U.K., people like taxi drivers need
05:21to send money back home, right?
05:23And average cost of remittance from mainstream remittance providers is 7% to 12% of cost of
05:28funds.
05:29That's a lot of money that you're giving away to just send money back home.
05:33So we made recently an investment in an online-based remittance provider that basically focuses
05:39on channels in Sub-Saharan Africa and Southeast Asia that is looking to lower the cost of doing
05:44this to 4% or sub-4%.
05:47So more money in the pockets of the working poor.
05:50And really, this is enabled by leveraging technology to deliver something that required a bricks-and-mortar
05:58approach in the past.
05:59And how did you come to be in charge of all of this?
06:02What was your interest in impact investing?
06:04And when did that start?
06:05So I grew up in emerging markets, I grew up in Bombay, and studied economics at Yale.
06:11And my senior year, I took a class in developmental economics, which really shaped kind of my curiosity
06:16about the sector.
06:17That's where I first learned about microfinance, I learned about traditional economic development
06:21and aid.
06:23And it sparked kind of this interest to kind of figure out how do you tie capital to some
06:29of the biggest challenges facing our people and our planet, if I may say so.
06:34And so I had been searching for ways to get involved in impact investing at Nuveen.
06:39You know, we helped design basically the portfolio that we've been implementing today.
06:44And we continue to do really innovative work here because now the sector is maturing and
06:51a lot more people are at the table having this conversation and we're excited to be part
06:54of it.
06:54And how do you decide what the goals of the portfolio are?
06:57The goals of the portfolio were designed really to address our ability to do this well, where
07:03we could play a leadership role in terms of the type of capital we were willing to provide,
07:07which is long term in nature.
07:09The risk adjusted returns we needed to see from those portfolios, which drove sector selection.
07:15So some of the sectors I described before provide those opportunities.
07:19And frankly, it was also the expertise that we had in house, right?
07:22Investing in private equity, investing in real estate are things that a firm like Nuveen
07:27does well.
07:28And so we thought when we play a leadership role in impact investing, it should be an extension
07:33of that expertise.
07:33And do you have any advice for people that want to have an impact but don't have access
07:38to, say like a private year fund or things like that, but want to have a positive impact
07:44when they're investing?
07:44Is there anything that they can do to get over that hurdle and figure out what they're doing?
07:51Yeah, absolutely.
07:53So the UN launched the Sustainable Development Goals in 2016, basically the roadmap for, once
07:59again, challenges and opportunities facing our people and our planet.
08:03And it has 17 goals that provide frameworks for things that are much needed, right?
08:08So as investors think to place capital, it's one way to articulate where they want to invest.
08:14Is it around issues of hunger, poverty, income inequality, sustainable cities?
08:20So the SDGs, the Sustainable Development Goals, provide a framework to have a discussion with
08:24financial advisors, investors.
08:27And really that is picking up because corporations are talking about it, governments are talking about
08:32it, or so are investors.
08:33Great.
08:34And last question.
08:35What do you think people get most wrong about impact investing?
08:38I think what people get most wrong about impact investing, and this is slowly changing,
08:41is that impact investing must mean giving up returns, that it's some sort of philanthropic
08:47tool.
08:48We really see impact investing as really being an investment discipline like every other one
08:53is coming of age, right?
08:55It's taking into account material and intentional outcome orientations.
08:59And while impact investors could choose to have subsidized returns, they could also choose
09:04to have risk-adjusted returns, and that's a growing theme.
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