Beliefs
TI is a different (albeit related) investment philosophy with respect to the conventional responsible investing practice, with a more substantive focus on intentional, incremental efforts and strategic shifts to achieve returns along quantifiable impact. While remaining broadly consistent with the principles of impact investing, TI hinges upon a set of specific, fundamental beliefs.
1
The MEASA Focus
We claim that successful transition first and foremost will be accomplished if investments are targeted in those countries and regions with the highest growth potential, but at the same time facing the most severe socio-economic, and environmental challenges. These are also countries where access to long-term stable capital is scarce and the additional external investment dollar has an outsized additionality effect. In this direction, we identify the Middle East, Africa, and Southern Asia (MEASA) as the target regions of choice due to the region’s demographic and economic growth prospects.
2
The catalyzing role of private markets
For capital allocation to be impactful and to foster a meaningful transition, it needs to support the growth of invested companies. Early-stage venture capital or growth private equity funds are therefore at the center stage of transition investment, whereas listed securities play a more limited role. Indeed, secondary trading of shares does not provide additional funding to companies. Furthermore, even if public liquid markets could affect a firm’s investment indirectly via the cost of capital when a large fraction of investors follows a trend, these effects are transitory in markets where investors unconcerned about impact also operate.
3
The enabling contribution of long-term investors
Global institutional investors with significant assets under management and long-term horizons make the difference in determining the scale and pace of the envisaged transition. Sovereign wealth funds, pension funds, insurers, family offices, and other like-minded institutions’ contribution as direct equity investors and Limited Partners (LPs) is key to support impactful ventures. In the long-run, transition investment improves the fundamentals of emerging economies, mitigates global socio-economic and environmental risks, and ultimately boosts portfolio value of assets under management, aligning the interests of beneficiaries and society at large.