Where were you on October 22, 2015? Does the name Michael Trupo ring a bell?
Well if it’s any comfort, I have no idea what I was doing on Oct. 22nd 2015 and Mike Trupo could walk up and hit me and I wouldn’t know who he was. But on Oct. 22, 2015 Mike Trupo from the Office of Public Affairs at the U.S. Department of Labor issued a press release that changed impact investing forever. Here’s the original release.
The title of the release gives you a hint of its importance: “New guidance on economically targeted investments
in retirement plans from US Labor Department”. Seven years after essentially discouraging economically targeted investments (“ETIs” aka Impact Investments), the DOL had revisited the concept and decided they just might be okay.
“Investing in the best interests of a retirement plan and in the growth of a community can go hand in hand,” said U.S. Secretary of Labor Thomas E. Perez. “We have heard from stakeholders that a 2008 department interpretation has unduly discouraged plan fiduciaries from considering economically targeted investments. Changes in the financial markets since that time, particularly improved metrics and tools allowing for better analyses of investments, make this the right time to clarify our position.”
Why was this such a big deal? Well, the exact same thing happened in 1978 when the DOL issued guidance that alternative investments such as private equity, venture capital and hedge funds were acceptable for pension funds. In the following five years new venture capital funds exploded.
This description by Jerry Neumann describes it perfectly:
Money had been pouring into venture capital since a 1978 change in regulations allowed pension funds to consider it a “prudent” investment. The $2.5 billion managed by venture capital firms in 1977 quintupled by 1983 to $12 billion2. New money committed per year rose 16x over five years, from $218 million in 1978 to $3.6 billion in 19833. The number of venture funds grew from 47 in 1980, to 71 in 1982, to 113 in 1983. The number of investment professionals nearly tripled, from 597 in 1977 to 1,494 in 1983. – full/original post here
This chart shows the massive growth of venture capital funds in the early 80’s.
So what does this mean for impact investing? Obviously we don’t know yet. But there’s certainly been a flurry of announcements from major investment firms in the last 18 months. And the last GIIN industry survey actually polled impact investors about their concerns about all the new entrants into the field. Is there a bubble coming? Again, it can be avoided. But we are clearly living in exciting times. My hope and prayer is that we learn from history’s mistakes so that we don’t repeat them.