Ambitious Plans for Catalytic Capital
October 2, 2019 | Perspectives | Impact Investments, Catalytic Capital Consortium
Debra Schwartz, Managing Director of Impact Investments, shares information from MacArthur’s invitational proposal process to support the Catalytic Capital Consortium.
This week, more than a thousand impact investors are gathering in Amsterdam for the Global Impact Investors Network (GIIN) forum. This annual event embodies the vibrant optimism of the impact investing field. For MacArthur and our strategic partners, The Rockefeller Foundation and Omidyar Network, it presents an opportunity to reflect on and share some of our experience since launching the Catalytic Capital Consortium earlier this year.
This initiative rests on our shared belief that greater, more effective use of catalytic capital — investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment — is essential to realizing the full potential of impact investing, including its role in helping to achieve the Sustainable Development Goals (SDGs).
To advance the new initiative, MacArthur is investing up to $150 million in funds or financial intermediaries that demonstrate the power of catalytic capital and advance the SDGs. Each investment will match and amplify catalytic capital commitments being made by other investors. Our first investment was $30 million to help expand the Rockefeller Foundation’s Zero Gap initiative, which aims to create the next generation of innovative finance vehicles capable of mobilizing capital from the private sector to fund the SDGs.
To source additional investment opportunities across a range of challenges, geographies, and models, we began an invitational proposal process. In many ways, this has been an experiment. We were not entirely sure what it would yield or uncover. How many funds would be raising catalytic capital to fuel some or all of their investing? What sources of existing catalytic capital would they have raised? And what kinds of critical social or environmental challenges would they be working to address?
The response to our invitation proved robust. We fielded more than 100 proposals requesting over $2 billion. *While demand for capital on attractive terms may seem unsurprising, we were impressed by the quality of the proposals and their compelling impact potential.
Collectively, the pool of proposals targets impact across all major regions of the world, in 20 sectors, and with cross-cutting themes, clearly showing that the need for catalytic capital is truly global and wide-ranging. Each of the 17 SDGs is addressed, with notable concentrations on: no poverty (#1), gender equality (#5), affordable and clean energy (#7), decent work and economic growth (#8), and climate action (#13).
The proposals describe ambitious plans to support smallholder farmers, strengthen low-income communities, and improve access to clean water. They seek to advance breakthrough healthcare technologies, spur lending to displaced people, improve land conservation, and bridge the financing gap for small- and medium-sized enterprises that provide vital goods and services. Overall, the work championed by the funds and intermediaries that submitted proposals promises to improve the lives of tens of millions of people around the world.
More than 200 different investors indicated interest in or commitments to support these efforts with their own capital. These investors include foundations, family offices, development finance institutions, non-governmental organizations, corporations, and mainstream financial institutions. Backed by these resources and the prospect of additional investment, the groups that submitted proposals to us aim to raise and deploy more than $13 billion in debt, equity, and guarantees, reflecting the substantial leverage potential of catalytic capital.
The proposals we received also show that catalytic capital can play many roles. Some groups expect to eventually attract commercial investments, but only if they can first access catalytic capital to build proof points and grow. Others emphasize the importance of using catalytic capital to de-risk more conventional investments in a blended financing structure. And some cite the value of a major new investment as a signal to the market, suggesting that this would help draw investment from other investors on the sidelines.
Of course, not all impact funds or enterprises face capital gaps that create the need for risk-tolerant, patient, or concessionary financing. But for those that do, their full impact potential will only be realized if investors value catalytic capital, understand its power, and work together to unleash greater flows of this distinctive resource.
Fortunately, substantial and diverse sources of catalytic capital are already at work, as revealed by the proposals we received. This is a strong base upon which we, our strategic partners, and indeed the whole field can build.
Over the next few months we will be working toward investment decisions. As we move ahead, we are mindful that our funds alone cannot meet the market need. We hope that other asset owners will be inspired to join with us in using catalytic capital to help unlock meaningful impact and investment that would not otherwise be possible.
*The information herein is for informational purposes only and is not intended as an offer or solicitation for the sale of, or marketing of, any individual fund or security. Information is provided solely for the purpose of providing general knowledge to the public about catalytic capital and in furtherance of the charitable mission of the MacArthur Foundation and the Catalytic Capital Consortium. None of the information or analysis presented is intended to form the basis for any investment decision, and no specific recommendations are intended.
