Ron Cordes is the co-chairman of AssetMark (formerly a unit of Genworth Financial) and the founder of ImpactAssets, a nonprofit financial services company. Yes, you read that correctly: a nonprofit financial services company. ImpactAssets connects advisors and investors with investments that do good in the world—impact investments. Cordes founded ImpactAssets three years ago through his family foundation, which was funded with a portion of the money he made selling his asset management firm, AssetMark, in 2006 to Genworth, a global insurance company. (Genworth sold AssetMark to a private equity group earlier this year for $412 million.) Reports at the time had Genworth paying $230 million for AssetMark with additional performance-based payments of $110 million.
Creating his family foundation was relatively easy, Cordes says. Investing his money the way that he wanted to—with a social impact—was not. In fact, the process of uncovering, vetting and investing in impact investments was so cumbersome and arduous that it inspired him to form ImpactAssets to help others looking to invest in a similar fashion.
“It’s been said that the longest 12 inches in the universe is the distance between your head and heart, and I think that this field of impact investing talks about that, speaks to that distance. We talk about connecting money and meaning, we talk about connecting passions and portfolios. For me, it’s been about understanding that connection between the head and the heart,” Cordes says.
The story of how that understanding came to be for Cordes is worth letting him convey: “For me, where it all came to a head was in a tiny little village in Uganda on November 1 of 2008. The author and coach Richard Lighter talks about the fact that the two most important days in your life are, one, the day you’re born, and two, the day you truly understand why you were born. For me, that second day occurred in a tiny village in Northern Uganda in the fall of 2008.
“I was in Africa with a group of people—some other investors, a couple of other philanthropists. We were there looking at a number of early impact investments that we’d made. We found ourselves for an afternoon in a small village called Buyobo, Uganda, looking at a very fledgling microfinance program in which we had been the very first funder. That program started with 20 women in one village, and today, five years later, encompasses four countries.”
On that day, Cordes says, “there were 12 of them in total that were showing us their businesses. We walked down from one to the other. These were the businesses: One had chickens, and was raising eggs; another one had created a small restaurant.” But it was the next business owner who would change Cordes’ life forever.
“As we walked from one to another, this woman kept coming up and tugging at my shoulder. She had something really important that she wanted to tell me. We got to her business, which was selling used clothing. She’d make the two-hour trip down to Mbale, the big city, once a month. She’d buy used clothing there, bring it back, put it up on a rack, and sell it in her village.
“When we finally got the interpreter over, I learned what it was that was so important she needed to tell me. She said, ‘We appreciate when you people from the Western World, from the U.S., come to Uganda to save our children. We need to save our own children. Thank you for investing in us so we can do that.’”
Cordes pauses. The experience still has an emotional effect on him, and he admits it: “That still gives me chills when I think about it because it just hit me. It turned everything that I had thought about conventional philanthropy and aid just on its ear. She had said thank you for investing in us. It made me recognize that no matter what situation someone is in, they can be the architect of their own solution if they’re simply given some resources to be able to make that happen.”
That was the “heart” part of Cordes’ story. Now for the “head”:
“What we learned very quickly was when you have a family foundation, the act of giving money away is relatively easy. You’ve got consultants and staff and etc. It all happens auto-magically. The question then becomes, how do you give it away effectively and with leverage? We began to ask for and got consulting support. There’s a lot of great, well-intentioned consulting support out there for folks with family foundations.
“Very early on, I became frustrated, and I became frustrated over two things. One was that the issue that we were most passionate about, speaking to that experience I had in Buyobo, was global economic empowerment. How do you get to the root causes of poverty? How do you give people real economic empowerment to enable them to lift themselves up the economic ladder? That’s a big problem and we were a small foundation.”
Moreover, as Cordes explained, his grants budget was 5% of his foundation’s portfolio. Which means 95% of his foundation’s portfolio, like many foundations’ portfolios, works to earn that 5%. The better the foundation’s overall portfolio return, of course, the more money there is for grants.
“As I looked at solution sets, the traditional philanthropic solution sets, it dawned on me that we didn’t have the ability to write the multimillion dollar checks again and again that were going to be needed for philanthropic solutions. As I’ve often said, we’re not the Gates Foundation. We have several less zeros in our balance sheet. We were challenged with being more creative and developing more leverage and trying to be more catalytic.”
By utilizing impact investments in his foundation’s overall investment portfolio, he figured he could leverage his impact. Cordes allocated 20% of the portfolio to impact investments.
The second part of Cordes’ frustration, as he explains it, was actually finding impact investments that made a difference.
“We were working on a number of college campuses in social entrepreneurship with some programs that we ran. We had access to a number of smart, young MBA students. I brought a few of them together, I created an internship for them, and I said here’s what we want to do. These are the types of investments that we would like to put in our portfolio. We’d like you to go out and build a universe for us of who is it that we should be working with,” he says.
Cordes’ mission, he says, was to create a manager of managers impact investing business along the lines of what he had built at AssetMark. “We built multi-manager funds. We’ve built funds of hedge funds and private equity, etc. I’ve always been comfortable working with managers as opposed to directly investing in deals myself. I looked at [impact investing] and said, ‘We’re putting out a fair amount of capital. I don’t have the bandwidth to look at all the opportunities. What I want to do is I want to find a group of really great managers who are in the business of sourcing.’ How hard could that be?”
This is where the second frustration really reared its ugly head: “This group of young MBAs came back about six weeks later completely sheepishly and they said, ‘Mr. Cordes, we’ve looked at everything in the marketplace and, and ... there’s nothing, there’s nothing. We found some random managers that we’ve talked to and, ironically, their best source of new managers was with an existing manager who said, ‘If you like what I’m doing, then maybe you want to talk to this person over here.’”
He recalls that because of this stall, it took him almost an entire year to invest the 20% of his portfolio targeted to impact investments.
“We put it across debt and equity. We made some investments locally in CDFIs [community development financial institutions] here in the U.S. We made a number of investments globally in micro-finance, trade finance and small businesses and education. We even put a little bit in technology. We were really proud,” he says.
And then he relays the date when he finally had fully invested that 20% of the foundation’s portfolio: August 2008.
In September 2008, the financial markets went into a meltdown.
“You can only guess what happened. We get to the end of 2008, the portfolio gets marked to market and what we find is not only did we not lose money on that 20% but it was far and away the best performing in our portfolio,” he says excitedly.
With the other 80% of his portfolio, he’d invested in all the major banks. They took a major hit. On the impact side “we had invested across dozens of micro-banks in countries I could neither pronounce nor spell nor find on the map. And yet that portfolio outperformed completely the portfolio of blue chip banks that we had invested in in the developed world.”
As an investor, Cordes knew he was on to something: “I got return and most importantly I got a completely non-correlated asset class. If we remember as investors, what was the big problem in 2008? It wasn’t necessarily that things went down; it was that everything went down. It was that asset classes that we’d previously thought were uncorrelated ended up being correlated. Here, we’d actually found an asset class or asset category, depending upon how you look at it, that was completely uncorrelated for the global financial markets.
“What happened is I looked at our own portfolio and I said, ‘OK, this works.’ I get it from the head as an investor. I get it from the heart. I’m connecting my portfolio with my passions. I’m connecting money with meaning and I’m earning a solid financial return. My first questions were, ‘Am I alone? Am I the only one that gets this? Is there a demand for this? Is it possible that this is something that could be spread to other family foundations, to other wealth holders and ultimately to the financial advisory community where I had spent the past 30 years?’”
To help answer his questions, Cordes and two other foundations, the Calibre and Rockefeller foundations, surveyed about 1,000 high-net-worth and affluent investors. What they found was 48% were “very interested” in impact investing; 40% were “somewhat interested”; and 12% said, “No, thanks.” That meant, Cordes says, almost nine out of 10 high-net-worth and affluent investor were interested in impact investing. But they found virtually none of the group was actively investing that way.
Why? To answer that, Cordes turned to one of those well-intentioned consulting groups, Hope Consulting. And what the firm found was, in short, untapped opportunity.
“For me, what came out of that was the lightning bolt that started the cause, the founding of ImpactAssets. It was that people had all kinds of different reasons [for not investing]. But the number one reason, if you really synthesized it all, was that these folks said something like, ‘I work with one or more financial advisors and I trust that person. I rely on them to make recommendations for which would be in my portfolio. I’ve never had a conversation with my advisor about this.’ One of them had a great line, which was: ‘I feel like I’m at a restaurant and I didn’t even know this was on the menu. How was I going to order it if I didn’t even know that it was available?’”
ImpactAssets, while still a young firm, has developed quite a sophisticated offering and menu for both investors and advisors. It has developed the Impact 50 as a quick impact investment manager offering, a pooled Global Impact Ventures fund and donor-advised funds, and it facilitates industry research, as well as providing education on the topic for financial advisors. It has 15 employees and $100 million of assets under management. And by my estimates, it’s exactly 12 inches long.