finding ethical alpha using aqal investing
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De-risking early stage investments using integral investingTRANSCRIPT
© 2014 AQAL Capital. Strictly Confidential.
FINDING ETHICAL ALPHA USING INTEGRAL INVESTING METHODS
May 12-13, 2014, St. Augustine, Florida
Mariana Bozesan, Ph.D., M.S.Head of AQAL Investing Family OfficeFounder & General Manager, AQAL CapitalClub of Rome intl. full memberwww.AQALcapital.com
© 2014 AQAL Capital. Strictly Confidential.
THE FUTURE OF RAISING CAPITAL: WHY GP’S AND ASSET MANAGERS MUST NOW EMBRACE HUMANITARIAN AND ENVIRONMENTAL RISK RETURN METRICS
Mariana Bozesan, Ph.D., M.S.Head of AQAL Investing Family OfficeFounder & General Manager, AQAL CapitalClub of Rome intl. full memberAQALcapital.com
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 3
OUTCOMES TODAY
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 4
TREND #1: INVESTORS’ CONVERGENCE
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 5
TRADITIONAL INVESTING IS CHALLENGED
• Financial crisis lead to fear and uncertainty- Falling revenue and margins- Massive capital migration
• Frustrated wealth owners losing trust in their asset managers• Alternative and customized investing are on the rise• Traditional investing often focused on short-term profit
maximization at the expense of long-term health of global community, culture, environment, ethics, and overall human happiness
• Traditional investment metrics often missed sustainable, time-based businesses and responsible investment opportunities
• Many traditional asset managers failed to develop a core competency in alternative investing opportunities including impact investing (SRI/RI/ESG)
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Profit
TRADITIONAL INVESTING
Profit Metrics
e.g.
WALL STREETBERKSHIRE-HATHAWAY
KKRSEQUOIA CAPITAL
Source: Mulcahy, D. & Weeks, B. & Bradley, H. S., (2012, May). We have met the enemy …. And he is us: Lessons learned from twenty years of the Kauffman Foundation’s investments in venture capital funds and the triumph of hope over experience. Kauffman Foundation Research
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 6
IMPACT INVESTING IS FRAGMENTED IN TERMS OF MOTIVES AND APPROACH
Two types of Investors:1. Financial (Profit) First Investors
- Pursue the optimization of financial returns before having an impact floor
- Investors “are not willing to accept lower than market returns as a cost to optimizing social or environmental goods, although they still make a positive impact”
2. Impact (People/Planet) First Investors - Seek to optimize social and environmental impact
with a financial floor- For greater impact, investors are willing to accept
lower than market financial returns
IMPACT INVESTING
Sustainability Metrics: ESG
Triple Bottom Line
Profit
People
Planet
e.g.GRAMEEN BANKTRIODOS BANK
GLS BANKBANK SARASIN
*Definition after (Eurosif, 2010, p. 7)
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 7
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 8
The integration between Traditional Investing
and Sustainable Impact Investing is needed in order to fulfill the needs
of leading edge investors today
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 9
AN INTEGRATED APPROACH TO INVESTING
Integral Investing is based on Ken Wilber’s Integral theory that is widely applied in 50 disciplines including science, politics, economics, education, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company. Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala.
Integral Metrics
Planet
People
Profit
Ethics, Ego, Emotions &
ConsciousnessBehavior
ExteriorInterior
Indi
vidu
alCo
llecti
ve Culture & Morals
INTEGRAL INVESTINGAQAL Investing, Natural Investing
Profit
TRADITIONAL INVESTING
Profit Metrics
IMPACT INVESTING
Profit
People
Planet
Sustainability Metrics ESG, IRIS, SAM
Triple Bottom Line
e.g.GRAMEEN BANK
LGT VENTURE PHILANTHROPY
e.g.
TRADITIONAL WALL STREET
BANKSAND
VENTURE CAPITAL FIRMS
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 10
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 11
AWAKENED INVESTORS HAVE APPEARED, OCCUPYING A SPECIFIC POSITIONING AND SHOWING PARTICULAR DRIVERS
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FIN
ANCI
AL R
ETU
RNS
SOCIAL, ENVIRONMENTAL, ETHICAL, CULTURAL, & HAPPINESS IMPACT
PROFIT FLOOR
“FINANCIAL FIRST”IMPACT INVESTORSOptimize financial returns while maintaining an impact floor
PhilanthropyLOW
HIGH
LOW HIGH
Pure Philanthropy
Pure Financial “IMPACT FIRST” IMPACT INVESTORS Optimize social/
environmental impact while maintaining a financial floor
INTEGRALINVESTORS
Optimized, risk adjusted financial returns and
premium impact returns
IMPACT FLO
OR
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 12
TREND #2: CONVERGENCE OF BUSINESS MODELS
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 13
SOCIAL
ENVIRONMENTAL
PROFIT
ETHICS EGO
EMOTIONSCONSCIOUSNESS
BEHAVIOR
ExteriorInterior
Indi
vidu
alCo
llecti
ve CULTURE& MORALS
PROFIT
TRADITIONAL BUSINESSES
SOCIAL BUSINESSES
INTEGRALLY ACTING BUSINESSES (ESG/PRI DRIVEN )
e.g. DM, Puma, Whole Foods, Patagonia, REI
SOCIAL
ENVIRONMENTAL
e.g.ENRON
BPMONSANTO
PHILLIP MORRIS
e.g.GRAMEEN BANK
OWNERSLGT VENTURE
PHILANTHROPY PORTFOLIO COMPANIES
BUSINESS INTEGRALIZATION
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 14
PREMIUM RETURNS FOR INTEGRALLY ACTING BUSINESSES
*Source: Sisodia, R., Sheth, J., Wolfe, D.B. (2007). Firms of endearment: How world-class companies profit from passion and purpose. New Jersey: Wharton School, p. 16; **Source: Mackey, J., & Sisodia, R., (2013). Conscious Capitalism: Liberating the heroic spirit of business. Boston: Harvard Business Press Review.
15 Year 10 Year 5 Year 3 Year Cumulative Annualized Cumulative Annualized Cumulative Annualized Cumulative Annualized
FOE Return 1646.1% 21.0% 254.4% 13.5% 56.4% 9.4% 77.4% 21.1%
GTG Return 177.5% 7.0% 14.0% 1.3% -35.6% -8.4% -23.2% -8.4%
S&P 500 Return 157.0% 6.5% 30.7% 2.7% 15.6% 2.9% 10.3% 3.3%
Note: Company returns are total returns with dividends reinvested and compounded**
Sample: Whole Foods: +40%
Higher ROI than FoEsover 10 years
(1800% shareholder value 1995–2006)
Sample: 8.0xhigher ROI than market average
(S&P 500) over 10 years; and 3.1xhigher than GGCs
Sample: 3.0x higher ROI than market
average (S&P 500) over
15 years
GOOD TO GREAT COMPANIES (GGCs) 2002
Nucor; Kimberly-ClarkKroger; Walgreens
Wells Fargo; Gillette
INTEGRALLYACTING BUSINESSES
DM, REI, The Container Store Entelios AG, Riversimple
Stoneyfield Farms, Whole FoodsTrader Joe’s; Patagonia
FIRMS OF ENDEARMENT (FoEs) 2007*
Patagonia AmazonSouthwest AirlinesIKEA; BMW; eBay,
AVEDA
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 15
TREND #3: THE EMERGENCE OF SECOND TIER HUMAN CONSCIOUSNESS
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 16
RATIONALINTELLIGENCE
THE TRUE
- SCIENCE -
ENLIGHTENMENT ERADEMOCRACY
NATION STATESMODERN MEDICINE
SPACE SHUTTLE
CIVIL RIGHTS & GREEN MOVEMENTFEMINISM
SOCIAL BUSINESSCULTURAL CREATIVES:
25-30%
EMOTIONALART, VALUES, MORALS,
ETHICS
THE BEAUTIFUL
- ART -
INTEGRALLY ACTING HUMANSINTEGRATING HUMANITY’S VALUE SPHERES
“DeMedici Effect” in the 21st century
THEBEAUTIFUL
- ART -
THE GOOD
- MORALS -
THE TRUE
- SCIENCE -
EVOLUTION OF HUMAN CONSCIOUSNESS TO LATER STAGES OF DEVELOPMENT
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 17
OUTCOMES TODAY
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 18
THE FINANCIAL CONTEXT
The disaster of 2007/2008 nearly ruined the global economic system– By Oct. 2008, about $25 trillion were obliterated from the value of stock markets
What started with an initial liquidity crisis lead to – The disruption of capital flows– The collapse of the “too big to fail” financial organizations incl. Lehman Bros., Fannie Mae, and
Freddy Mac– Severe downturns in the global casino/stock markets world wide– Currency crunches, failure of major businesses , global recession including the European sovereign-
debt crisis (Ireland, Portugal, Greece, Spain, Cyprus, etc.) – LIBOR, Madoff scandals– No end in sight!
Q: How sustainable are our financial and economic systems?
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 19
THE SOCIAL CONTEXT
Real estate bubble bursts, foreclosures, evictions (USA, Spain, Ireland, etc.)
Prolonged unemployment in most Western countries– 7.6% USA, 12% in Europe on average
Increased inequality in the West– USA with the “most millionaire households” in the world followed by Japan, China, UK, and
Germany
Growing health problems physically, mentally, emotionally– Cancer, overweight, obesity, depression, asthma
Social unrests: – Occupy movement, Spanish Indignados, Greek protest, Arab spring, Ucraine protests
The worst social consequences since the Great Depression
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 20
THE ENVIRONMENTAL CONTEXT
We continue to emit twice as much CO2 in the atmosphere than can be absorbed by our forests and oceans with disastrous consequences for the earth’s ecological balance:– Global warming at accelerated speed can lead up to 2-4 degrees Celsius in this century– Ongoing droughts
Water is becoming more important than petrol
– Ongoing hurricanes, floods, rapid melting of polar ice caps lead to the raise of ocean levels
– Irrecoverable loss of bio diversity
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 21
What is going on?
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The quiet killer and the driving force behind destruction
but also the GOOD is
Exponential Growth
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 23
Most decision makers do not get it
until it is muchto late to respond
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 24
What is Exponential Growth?
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The sage and the Indian king
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THE SAGE AND THE INDIAN KING
8 > 1+2+4=7
32 > 1+2+4+8+16=31
On each new field, there are more grains of rice than in all previous fields together
Exponential growth means that each duplication contains a larger quantity of things than all previous quantities taken together
The last square would contain 9.223.372.036.854.780.000 grains of rice that would cover the surface of today’s India with more than 1 meter of rice
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EXPONENTIAL POPULATION GROWTH220.000 PEOPLE ARE BORN PER DAY (NET)
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EXPONENTIAL ECONOMIC GROWTH
It took Europeans 1000 years, the UK 100 yrs., Germany 70 yrs., Japan 50 yrs., and it took China only 6 years to double its economic output
China’s resource hunger is not only a media eventIts GDP has doubled 6 times since 1978By 2017, it will need more resources and will produce more goods than in its entire history all together!
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OUR TRUE PROBLEM: LACK OF AWARENESS REGARDING THE IMPORTANCE OF EXPONENTIAL GROWTH
With every duplication, the quantity added is LARGER than the entire compounded previous quantityThe megatrends in the 21st century are:– Exponential population growth– Exponential economic growth– Exponential consumer growth: During the last 40 years, we added
3 additional Billion consumers
We have reached our physical Limits to Growth on our planet
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“Humanity is stupid enough not to do what is perfectly doable”
to prevent disaster, Prof. Randers
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Is that really true?
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Maybe!
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But, something good is also going on!
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 34
EVOLUTION OF CONSCIOUSNESSRESEARCH ON PRIVATE EQUITY INVESTORS
138 investors: 50% men – 50% womenGlobal investors from USA, Canada, Germany, China, India, France, Thailand, Bali, Singapore, Turkey, Dubai, Ireland, SwitzerlandHigh-tech, clean-tech, music, beverage, health care, Wall street financiers, lawyers, music industryActive philanthropists and social entrepreneursStanford, MIT, Harvard, Sorbonne, etc. graduates– 45 doctorate degrees, 60 MBAs, other Master’s degrees
Aggregated investment capital: $1.39B
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 35
THE HERO’S JOURNEY: AWAKENING
35Copyright 2010 |
Physical degradation, back pain, overweight, regular colds, heart problems, food allergies, injuries, multiple sclerosis
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THE HERO’S JOURNEY: EMOTIONAL PAIN
36Copyright 2010 |
“horrible divorce,” death of “mother” or “wife,” “high-degree anxiety,” “worry and fear,” “heartbreak,” tension between “fear and desire,” “grief,” the “need” to be accepted by the outside world, “frustration,” “lack of trust,” “lack of joy,” “deep sadness,” “lack of alignment,” “lack of fulfillment,” “completely unhappy”
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 37
THE HERO’S JOURNEY: THE TIPPING POINT
37Copyright 2010 |
TERRIBLE EMOTIONAL PAIN LEAD TO THE COURAGE TO FACE OWN SHADOW USING TEACHERS
– “Got fed up with fear”– Decision to experience the “dark night of the soul” – Asking essential life questions: “Who am I? Why am I here?”
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 38
NOTICED LACK OF MEANING AND FULFILLMENT
“I wasn't manifesting why I was here” “I was following a script that wasn’t authored by me”“While there were fun things like building new markets and I really enjoy business, there was this sort of almost mind numbingly impossible monotony around the trajectory that I was on”“I had enough intellectual understanding that the gold rings were running out”“There’s fewer jobs left” in the world“There was a growing, gnawing, unfulfillment of maximizing shareholder value”
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UNITY CONSCIOUSNESS EXPERIENCES
“Lightning bolt [that] moved through my body” “Out-of-body experience … that really showed me very clearly that I am not my body”“We proceeded to have a conversation where he read my mind and responded so I never opened my mouth”“Feeling [that] would be so powerfully strong that it was almost to the point where you couldn’t walk” “Mystical experience,” “divine light,” “divine intelligence,” the “heart was exploding with love,”“My body turned into an intense beam of light”“My heart opened and I could feel every bird and insect as part of me”
They had no framework to understand what was going on and a “quantum leap in consciousness” was the result
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THE HERO’S JOURNEY: RETURN TO SOCIETY
“This [journey within] was like drinking out of a fire hose. In this area, MIT and Stanford Business School were like drinking out of a fire hose for academic and business issues. This was like drinking out of a fire hose for emotional, spiritual and consciousness issues. We need both.”
40Copyright 2010 |
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 41
INVESTORS’ VALUES SHIFT
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 42
How can we leverage this development in early stage
investing?
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 43
OUTCOMES TODAY
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 44
THE AQAL MODEL & DUE DILIGENCE PROCESS INTEGRATED INVESTING IS HONORING THE TRUTH IN ALL THERE IS
Integral Investing is based on Ken Wilber’s Integral theory that is widely applied in 50 disciplines including science, politics, economics, education, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company. Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala.
Integral Metrics
Environmental DD
Social, Stakeholder & Governance DD
Traditional $$$ DD
Individual Consciousness (incl. morals &
values) Due Diligence
Individual & Collective Gap
Analysis & Report
ExteriorInterior
Indi
vidu
alCo
llecti
ve Organizational, Cultural & Ethical
Due Diligence (DD)
INTEGRAL INVESTINGAQAL Investing Screening Process
Profit
TRADITIONAL INVESTING
Profit Metrics
IMPACT INVESTING
Profit
People
Planet
Sustainability Metrics ESG, IRIS, SAM
Triple Bottom Line
e.g.GRAMEEN BANK
LGT VENTURE PHILANTHROPY
e.g.
TRADITIONAL WALL STREET
BANKSAND
VENTURE CAPITAL FIRMS
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 45
KEN WILBER’S INTEGRAL MODEL
Ken Wilber’s Integral Model is endorsed by Bill & Hilary Clinton and Applied in 50+ disciplines and organizations including McKinsey and Company
Four quadrant correlates for humans, along lines of increasing complexity
Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala.
Self & Consciousness[Subjective Experience]
I
INTERIOR INDIVIDUAL
INTERIOR COLLECTIVE
Culture & Worldview[INTER-Subjective]
ArchaicAnimistic-Magical
Early MythicLate Mythic
Scientific-RationalPluralistic
HolisticIntegral
12
34
56
78
Postmodern
Modern
Traditional 1
23
45
67
8
Social System & Environment[INTER-Objective]
Brain & Organism[Objective Behaviors]
IT
EXTERIOR INDIVIDUAL
EXTERIOR COLLECTIVE
WE ITS
Brain functions,
organic states, n
eutral
structu
res, etc.
12
34
56
78
12
34
56
7
Instinctual SelfMagical Self
Egocentric SelfMythic Self
Achiever SelfSensitive Self
Holistic Self
Survival ClansEthnic Tribes
Feudal EmpiresEarly Nations
Corporate StatesValue Communities
Holistic CommunitiesIntegral Meshworks
Foraging Agrarian Informational
Horticultural Industrial
8Integral Self
Neocortex (Triune Brain)Complex Neocortex
SF1SF2
SF3
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 46
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 47
SUMMARY
Demystifying the landscape of rather confused investors, businesses, and society
Investors’ convergence
Convergence of business models
Emergence of second tier human consciousness
Understanding the hidden determinants, context, and trendsExponential growth is the driving force
Unleashing the power of the integral model for de-risking early-stage investments
“The Future of Raising Capital: Why GP’s and asset managers must now embrace humanitarian and environmental risk return metrics” We can say they MUST In my view, they will do it only when they reach the level of consciousness that mandates it
to them from within – it is a function of evolution and everybody starts at ground zero!
© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 48
WE WILL CATCH THE BOAT