Slow Money and Local Investment

I attended the Slow Money national gathering this week which catalyzed much thought about local investment, or perhaps more properly, the lack of local investment. I attended a break-out session called "where should slow money fit into your portfolio?" hosted by 4 asset managers from four large wealth management funds. The panel was made up of: Steve Schueth, President, First Affirmative Financial Network; David Wolf, Chief Investment Officer, BSW Wealth Partners; Matt Patsky, Chief Executive Officer, Trillium Asset Management, LLC; Joel Solomon, Chairman, Renewal Funds. The panelists all had very interesting things to say about what they do and how they are slowly transforming the wealth management industry towards more of a values-based investment and triple-bottom-line investment industry. However, much of the conversation really just moved the audience towards asking the question related to the title of the session, how does slow money fit into the investment strategy of these firms and their clients? The answer was basically that it currently doesn't. Very interesting.

The problem is one of scale. These wealth management firms can only afford to invest in and complete due diligence on other large securities or funds. They are not doing targeted local investments in building the new economy, local food business startups, or local revolving loan funds. The problem is really two-fold. One, as I mentioned, they cannot afford to complete the due diligence on many small local projects and it would most likely be more expensive to have many small projects (each with different returns and timelines) than several large projects. Two, the current expectations for returns on these investments by the clients are still completely out of sync with what is truly sustainable. Even when the wealth management firms can invest in local revolving loan funds for local projects, the returns they expect are not something the local funds can produce. Part of building a new economy and also part of the Slow Money movement for alternative finance is about bringing our expectations for financial returns into sync with the reality that only fairly extractive businesses can produce 10, 15, 20% returns, which is exactly the kind of structure and behavior we must eradicate if we are to become sustainable as a society.

One of these problems can be tackled by the wealth management firms themselves, and the other cannot. The issue of our mental models and expectations around investments and returns can and is being changed by the wealth managers of these more progressive firms. They work with their clients to help them realize that good investments can have multiple returns, some financial, some social and some environmental. This helps the clients change their understanding of money and the purpose of investment, and thereby their expectations for financial returns and the desired impact of their investments in the world.

The issue of scale is not a problem that will likely be solved by the existing firms in the industry. This leads to an exciting opportunity and challenge however. Small, local investment intermediaries need to be created which can connect small local projects with the capital they need to be successful. These local intermediaries could invest funds from individuals and institutions into new or exisiting local triple-bottom-line businesses because they could build the relationships needed to provide quantitative and qualitative due diligence. Just like we need local banks and credit unions again which will actually invest their assets in the local community, we also need investment intermediaries which can put local money to work building the local economy. I believe that it will also be easier to change the mental models about returns, the purpose of money, ect. on the local scale where social and environmental returns are more tangible to the investor. Destroying your own community to gain a larger financial return on your investments seems harder to do than destroying someone elses community for those outrages returns.

The new economy is all about slow, place-based, social purpose enterprises in all industries becoming the norm so as to preserve and enhance spaceship earth to facilitate life and happiness instead of destroying it in the pursuit of ever growing financial returns. Thus this is both an opportunity and a challenge.