Q&A: Four Undergrads on Impact Investing Research

Wharton Undergraduate Student Orientation

Each year, undergraduate Social Impact Fellows play an important role in building the evidence base for impact investing.

Our undergraduate research team learns about the impact investing industry through a deep-dive into a proprietary collection of impact investing fund documents. Further, the team reviews impact funds’ and social enterprises’ publicly available marketing materials to obtain a better understanding of the industry, and to advance our research agenda.

Following the 2016-2017 academic year, four Fellows answered questions about their experience reviewing approximately 100 impact investing funds from around the globe. Here’s what they said: 

You had a look at leading impact investing funds – what captured your interest?

Wendy: One aspect that I found particularly interesting was how differently funds interpret social impact. Some funds have a specific focus on investing in companies that empower underserved communities (e.g., financial inclusion); some target investments that contribute to environmental protection; some invest in companies that create positive impact in health and well-being (e.g., organic food); and others regard the generation of employment opportunities by the portfolio companies as an indication of social impact.

Lainey: Both the definition and measurement of social impact is broad. Some funds measure the number of jobs created or individuals reached. Others do not provide a clear measurement at all. The degree of focus on social impact varied as well. Some funds focused specifically on a sector and used strong language surrounding social impact while others focused more broadly (e.g., job creation).

What trends did you see?

Lainey: There is a lot of grey area as to the actual definition of “social impact”. In our research, we were surprised by the wide variety of companies that funds and investors considered to be socially impactful.

Wendy: In the area of financial inclusion, we saw rapid growth of financial technologies. While microfinance has been around for decades, in recent years there have been increasing developments in software and digital platforms that help to make financing more accessible for under-served individuals and small businesses. In addition, while micro lending is traditionally implemented through local banks and microfinance organizations, financial technologies have helped to boost peer-to-peer lending platforms in developing countries as well.

Kim: There is a strong trend with tech-oriented companies, both within and outside of the microfinance industry. Whether education-tech companies, socially impactful SaaS companies, or even companies providing Internet access to remote and high-need areas, there is great value in tech as the digital world becomes increasingly prevalent. It’s an area that I anticipate will drastically grow in the future.

Ming: A common theme among social impact oriented funds tends to be a focus on microfinance firms that provide loans to small business in rural areas or developing world.  These companies tend to create economic wealth by building some of the first businesses and establishing a marketplace for needed goods.  Moreover, the small businesses provide job opportunities for the local people.

What types of investments did you think were the most promising?

Kim: Investments in education technology companies seem to be incredibly promising. Not only do they leverage technological resources to better facilitate learning, these companies also seek to generate a positive ripple effect. By providing educational resources to students, regardless of class, gender, or income level, they will be encouraged to innovate and grow, and seek better solutions to the world’s problems.

I also saw promise in carbon trading and carbon credit offset companies, which enable companies or individuals to fund reductions in CO2 or greenhouses gases in order to compensate for their own emissions. People are becoming increasingly aware that industrial activity is at least partially responsible for many of the planet’s environmental issues.

Ming: There are benefits that the companies can receive by generating positive externality for the society. The corporations that are certified as B-Corp create a solid foundation for long term mission alignment and value creation by attracting employees who share the same pursuit for social values.  This also serves as a signal and incentive for impact-focused funds to target the companies that create a positive social and environmental impact.

What did you learn about pursuing an impact driven career?

Kim: There are a variety of ways to be involved in impact investing, and my work at WSII exposed me to the different asset classes that offer impact investment opportunities. Impact investing is incredibly broad and can take a number of forms, including social impact bonds, real estate, and other fixed income products. This just speaks to the rate of growth and the reach that impact investing is experiencing, which poses challenges, but also makes it a desirable place to start my career. The scope that impact investing encompasses also makes it a great fit for different types of people with a variety of backgrounds.

Wendy: But you do not have to work for a designated impact investing fund to pursue an impact driven career. Given the broad definition of “impact investing,” you can aim for positive and sustainable impact in a traditional investing role as well. However, I do think there needs to be a concrete framework to define impact investing so that the industry can have a clearer direction moving forward.

What should other students with an interest in impact investing know?

Kim: This is an incredibly exciting time to explore this field, as it is still relatively in its infancy and growing. The newness of the industry is appealing. For example, the research at the Wharton Social Impact Initiative is being used to define the scope of the field. Impact investing is also a field in which you’ll benefit from a diverse background and being able to draw from different industries, geographies, and skills.

Wendy: Impact investing is a nascent industry and has considerable potential for future growth. There are still many questions that need to be answered. It would be exciting to join an established financial institution that has initiated impact investing focus, or join an impact focused private equity fund directly to help shape the future of impact investing.

If you were to start your own fund, what would you call it?

Group vote: It’s Always Money in Philadelphia.

Mingzhi Cao is a sophomore studying mathematics and economics in the School of Arts and Sciences. His previous research was done with Professor Shinobu Kitayama at Research Center for Group Dynamics at the University of Michigan. He is also interested in public policy and joined Roosevelt Institute. He works at Penn Angle, a student club which aims to analyze current social issues through videography and photography. He also explores opportunities in areas such as microfinance and medical research. He enjoys spending time watching movies, doing animation productions, swimming, and scuba-diving.

Lainey Dorris is a senior at Wharton concentrating in Actuarial Science and is a four-year member of Penn’s varsity softball team. She started her involvement with social impact her sophomore year working for Penn’s Community School Student Partnerships through the Netter Center. Through working with students at West Philadelphia’s Huey Elementary, she realized she wanted to continue to help the community. Last year she worked for the Data and Evaluation Team for the Netter Center and helped with collection and analysis of attendance data for the Netter Center’s various programs in West Philadelphia schools. Last summer, Lainey interned with GLG, which connects its clients with experts in every industry. In this role, she learned about hedge funds, investing philosophy, and developments in the finance technology industry. She is interested in learning more about impact investing as a way to apply her business knowledge with social impact. When not on the softball field, Lainey’s hobbies include yoga, exploring Philadelphia, and trying new restaurants.

Wendy Jiang (W’19) is a sophomore at the Wharton School of the University of Pennsylvania. She is planning to concentrate in Finance, Statistics, and Accounting. Hailing from Nanjing, China, Wendy loves learning about different cultures and enjoys the diversity at Penn. She is passionate about social impact and is actively involved in Angle, a Penn student club dedicated to raising awareness on emerging social issues through the “angle” of visual arts. She is also the co-founder of Verawood Consulting, which seeks to empower start-up projects, enterprises, and non-profits in China with global vision and innovative thinking. In addition, Wendy has keen interest in academic research and has participated in both independent and research assistant programs, including the Wharton Summer Program for Undergraduate Research (SPUR). In her free time, Wendy enjoys playing the violin and watching women’s volleyball matches. Wendy is very excited to work on WSII’s impact investing research project as a research analyst.

Kimberly Phan is a junior at the Wharton School at the University of Pennsylvania, concentrating in Finance and Operations, Information, and Decision Making (OID), with a minor in History. She is from Toronto, Canada, and is a varsity swimmer on the Women’s Swimming and Diving team at Penn.  She has pursued her strong passion for social impact through work with Penn International Impact Consulting, and she traveled to Cambodia and Peru to work as a pro-bono consultant for NGOs.  She is excited to work on the Impact Investing project because she sees it as an intersection of two of her strongest interests, finance and social impact.