Time to re-imagine the market and economic mobility

It has been more than 50 years since President Johnson announced the War on Poverty, yet we still have 32 million children living in low-income families and one in four in poverty. For the first time, Americans across generations, class and race, do not think that the future will be better for their children.  Despite the fact that trust in government is at an all-time low, federal and state governments are both innovating and stretching to meet both the changing needs of families. 

The reality is that many of the programs created in the 1960s had the right early vision, but they have not kept pace with seismic societal shifts nor the needs of 21^st century families. Millions of people eligible for benefits never get them. A Government Accountability Office report, for example, found 64 areas across government where the effectiveness and efficiency of programs could be improved by, among other things, getting rid of duplication and fragmentation.

{mosads}In the social sector, charities are increasingly strained. Giving USA data shows that inflation-adjusted donations to charities are near where they were in 2000, despite the fact that the country’s population has grown 36 million and the number in poverty has climbed by 14 million. In addition, wealth has never been so concentrated as today with 1 percent holding 43 percent of the wealth in U.S.

Moving forward, engaging all sectors to build an intergenerational cycle of opportunity for all must be a national priority. And we have yet to crack the code of fully engaging the power and potential of the market. Thankfully, for every challenge a new opportunity is created.

Enter impact investing. It’s the opportunity to harness the financial and intellectual capital of the private sector to tackle the deep challenge of relieving poverty in the U.S. A new mindset that embraces both mission and financial return on investment is gaining momentum. We must tap and guide this moment of motivation and money.

Building from the social investment movement, impact investment is a 21^st century market innovation that is testing a new investment paradigm. It offers investments in organizations that aim both to provide measurable, scalable solutions to key social measures, while providing the chance to earn a return on those investments.

The idea of impact investing isn’t new, but interest in it has surged in recent years.

A report from the U.S. National Advisory Board on Impact Investing found $46 billion worth of impact investing under management in 2013, an amount that is expected to have climbed 19 percent by the end of this year.These include efforts to close the microbusiness gap in low-income communities, reduce urban recidivism rates, increase the availability of affordable housing, improve the quality of school lunches, and much more.

In addition, according to the Report on U.S. Sustainable, Responsible and Impact Investing, the total US-domiciled assets under management that use SRI strategies exceeded $6.5 trillion at the start of 2014. This growing influence of social and mission focus is infiltrating the psyche and practice of the markets. 

Goldman Sachs, JP Morgan, Bank of America and Morgan Stanley are developing business units dedicated to impact investing, and an increasing number of private foundations are becoming active impact investors. 

A just-released Aspen Institute report,The Bottom Line: Investing for Impact on Economic Mobility in the U.S. surveyed select institutional investors and found that 69% have impact investments targeting education, economic opportunities, and health and well-being, with the average investment size ranging from $100,000 to $10 million.

One example is Acelero Learning, an early education social enterprise focused on closing the achievement gap of low-income families. This for-profit pre-school program serves 5,000 children and contracts with Head Start in Las Vegas, New Jersey, Philadelphia, and Milwaukee. Started almost a decade ago in Harlem, the company raised $4 million to do a better job at what Head Start is designed to do: give disadvantaged kids improved opportunities for success.

Acelero Learning not only tracks 30 indicators of student progress, but requires parents to sign a contract to read to their children at least 20 minutes each night, while offering them effectiveness coaching and other help.

With their relentless focus on results, Acelero Learning’s year-to-year gains with their children on standardized tests are 50% higher than Head Start programs overall.

This program is changing lives. Tameka Henry discovered Acelero Learning after searching for a good preschool program for her daughter. She didn’t realize she was on a learning journey, as well. And working with Acelero, she put her daughter on a path to break the cycle of poverty.

Since leaving Acelero, in fact, Tameka’s daughter has been a straight-A student.

The Aspen survey also found several promising trends in the kinds of projects impact investments are financing. For example, a significant amount of investment capital — nearly $2.5 billion worth — is advancing economic mobility for families.

There’s an increased interest in pay-for-success programs, in which government agencies contract with a private firm, which only gets paid if it meets pre-set targets, such as a reduction in recidivism rates or early childhood education.

There’s also an increased focus on “place-based” efforts that target strategic investments in one location, with a goal of creating more widespread economic, social and educational gains in that area. In areas of extreme need and opportunity such as Detroit or Mississippi, impact investing offers a new set of investment tools and players.

Detroit has seen national and local foundations, coupled with private investors and investment funds, develop a cohesive strategy to rebuild and revitalize this once great city. In Mississippi, Southern Bancorp has made a commitment to expanding financial services to low-income communities in that state.

These are all promising efforts. But we are just at the early stage of this new era. We need to leverage this opportunity of impact investing, ask the right questions, do the due diligence and increase capital available. Most of all, we need to realize that we can’t fight today’s war against poverty if the weapons we have were developed five decades ago.

Mosle is vice president, Policy, at the Aspen Institute and executive director of the Institute’s Ascend program. The organization’s report, The Bottom Line: Investing for Impact on Economic Mobility in the U.S. is available at http://ascend.aspeninstitute.org/pages/the-bottom-line-investing-for-impact .