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WHY IMPACT INVESTING COULD BE MORE IMPORTANT THAN EVER

By Dan Somers of Boundary Capital

 

The current pandemic is alarming, but the data suggests that an increase in crises will be the new norm. Climate, Disaster and Development Journal predicts that intense floods and storms around the world could double in frequency within 13 years, as climate breakdown and socioeconomic factors combine. Pandemics also are predicted by some to increase more and more from urbanisation, resistance to drugs, and also indirectly from climate change. According to the newest data, more than 2.8 million people in the United States experience an infection from antibiotic resistant bacteria each year. Moreover, these “superbugs” cause 35,000 deaths per year in the country. The Washington Post cited research looking at the spread of disease carrying vectors such as mosquitos (notably spreading the Zika virus) as well as the encroachment of humans and animals for the same resources e.g. bats in West Africa having their climates destroyed by climate change, forcing them to hunt nearer humans which led to the Ebola outbreak of 2014. The U.S. intelligence community’s bottom-line assessment of the risk is plain: “Over 20 years, the net effects of climate change on the patterns of global human movement and statelessness could be dramatic, perhaps unprecedented.”

It’s not all doom and gloom however: There is a groundswell of popular mainstream opinion now demanding that Governments and businesses do more to help the environment and sustainability. Action is being taken by Governments and businesses, and indeed voters, consumers and investors all now voting with their feet to drive more businesses to adopt “ESG” policies.

Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows. Talking about sustainability “is a way to build better relationships with clients. In 2019, according to the Global Impact Investing Network, assets in this market totalled around $500 billion, based on surveys with 1,300 impact investors.

Investors no longer want to be associated with or contributing to companies to may harm society, on the wrong side of new sustainability guidelines or going against popular consumer views and trends.

As a result the climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA.

Ironically, what the recent Covid-19 ‘lockdowns’ have shown is that environmental pollution can drop dramatically in coordinated activities (planned or unplanned). Recent satellite images from NASA of China also showed less air pollution amid the country’s economic shutdown, due to less transportation and manufacturing. Nitrogen oxide pollution above major cities has decreased by 30% to 50% compared to the corresponding period of last year. And since the lockdown in Italy and the drastic reduction of water traffic and tourism, residents have observed the usually muddy canals run with bright, clearer water with swarms of fishes and the canal bottom clearly visible. More and more people are looking for ways to create such impact, without the reverse consequences of course.

This is where impact technologies come in. Impact technologies are those which provide a meaningful benefit to people’s lives directly or indirectly. This might be improvements in batteries and Electric Vehicle (“EV”) technology to reduce environmental pollution, improvements in drugs and medical devices which improve life quality, AI which helps to empower ordinary citizens transparently to take decisions and improve their skills and productivity. It is only changes in the ways we do things that can have a meaningful impact and with a viable approach to economic sustainability too. Many of these technologies have a high positive social or environmental impact as well as a medium and long-term economic advantage to make a strong financial return. However, like all technology development and adoption, there are many associated risks bringing a new technology to market and productising it, particularly when the market doesn’t yet exist or is nascent.

Boundary Capital is one of a number of innovative investment firms that are trying to change the rules around impact investing. Rather than investing in ESG public companies or impactful businesses, it focuses on investing in early-stage private “B2B” (Business to Business) technology companies that have the potential to enble and transform markets to make the most impact. So rather than investing in EV charging infrastructure, it invests in the technologies that it believes will make the most difference to accelerating the adoption of EVs by improving battery life and longevity. Similarly, it doesn’t invest in tertiary healthcare, but in oxygenated wound care devices that reduces the time and cost of wound healing (and hospital beds) by over 70%. The partners are all experienced technology investors and entrepreneurs who can bring more than just finance to impact businesses to help them succeed and deliver on the promised societal or environmental benefits.

As well as six themes derived from the UN’s Sustainable Development Goals, Boundary only invests in businesses that affect 100m lives or more in a meaningful way, based on a proprietary methodology measuring the lives impacted over a long-term period. These goals are also underpinned by an overall economic return for investors of 3x overall over 5 to 7 years.

Their latest investment is in Cambridge based Inotec, is a fast-growing medtech business that has developed a novel device capable of healing complex chronic wounds. The business has developed a world leading medtech product, called NATROX® Oxygen that generates pure humidified oxygen to treat a range of chronic wounds, from diabetic and venous ulcers to non-healing surgical wounds.

Dan Somers, Managing Partner at Boundary Capital says: “Impact investment has mostly been socially-driven up until now. There is now the real opportunity for investors to make a return as well as optimising the impact that their investments can make on human lives.”

Daniel Rodwell, Chief Executive of GrowthInvest adds: “We are seeing the market moving increasingly towards responsible investing, driven by a rising commitment to sustainability and a next-generation approach to wealth management.”

As long as we have an eye on medium term and place our support in the right places, we can all do our bit to mitigate some of the future crises and enjoy profitable and impactful lives.

 

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Business

THE SPAC BOOM: WHY COMPANIES AND INVESTORS ARE INCREASINGLY LOOKING TOWARDS SPAC IPOs

Maxim Manturov, Head of Investment Research at Freedom Finance Europe

Special purpose acquisition companies (SPACs) have long been part of the investment landscape, but this market has boomed in recent years. As well-known underwriters and investors show increased interest in the initial publication offerings (IPOs) of blank-check companies, SPACs have been pushed to the forefront of the agenda and there is even discussion around whether these will outpace the traditional IPO. Essentially, SPACs have become a very viable alternative for many private companies.

The SPAC boom is best exemplified by recent research from Refinitiv, which found that

SPACs have raised $79.4bn globally since the start of the year, eclipsing the $79.3bn that flooded into investment vehicles in 2020.[1] In fact, some studies report that SPACs accounted for a record 30% of all industry IPO earnings in 2020 and is already accounting for 54% in 2021, up from 1% in 2014.[2] The SPAC frenzy that commenced in 2020 therefore shows no signs of slowing, with 2021 set to be a record year for SPAC listings.

In light of this, with a long list of SPACs having filed for an IPO in 2021, it is imperative for companies and investors with growing appetites for participation to take a closer look before coming to a decision. So, let’s dive deeper into the rising popularity of SPAC transactions, the traditional IPO vs. the SPAC IPO and the future outlook for the thriving market.

The rising popularity of SPAC transactions

SPACs are non-commercial companies created solely to raise capital through an IPO in order to acquire an existing private company, thus bringing that company to the market. While SPACs have been around for quite some time –entering the investment landscape back in the 1990s– it is only recently they have exploded in popularity, as better-known underwriters and investors started taking part in them. This trend will likely grow as major private equity firms and venture funds continue to form more SPACs.

The reasons behind the rising popularity of SPAC transactions include low interest rates, simplified listing requirements, increased investor participation and the quantitative easing policies that are still adopted by most central banks. SPACs are also a great way to get exchange-listed during increased market volatility, as well as enable existing companies to gain access to liquidity that would not otherwise be available.

Ultimately, there are a range of factors that make SPACs a more sustainable option for raising funds, hence why target companies are increasingly looking towards SPAC IPOs to take them public. These factors, combined with the increasing number of high-profile sponsors entering the SPAC space, have enabled this market to soar. But will SPAC IPOs really outpace traditional IPOs this year?

The traditional IPO vs. the SPAC IPO

Traditional IPOs and SPAC IPOs are both subject to the same set of rules when taking a company public. When delving deeper into the benefits of these investment vehicles, however, there are notable differences. Compared to a traditional IPO, SPAC IPOs offer more certainty regarding the company value and fundraising, since the valuation is fixed through a privately concluded merger.

Alongside this, raising funds through SPAC transactions is one of the quickest ways for private companies who are in urgent need of capital. Getting ready for a regular IPO requires time, from a few months to a year, whereas creating a SPAC can be completed in just three short weeks. The benefits of this pace have been recognised none more so than amongst the ongoing pandemic, hence why investments in SPACs continue to surge.

One potential shortfall to point out, though, is the ability of SPAC IPOs to acquire a private company in the allotted timeframe. Once a blank-check company lists its security information on an exchange, it must complete a merger within three years or risks falling through, which creates added risk for buyers looking to invest.

In a nutshell, while SPAC IPOs can provide greater flexibility, efficiency and speed for target companies, they cannot wholly replace the reliability of traditional IPOs. Companies looking to go public must therefore weigh up the pros and cons of each option in line with their individual goals and capabilities.

The future of the SPAC market

That being said, many experts still believe that SPACs’ popularity will continue to grow in coming years as companies look to raise capital quickly and investors look to actively participate in this craze. This is demonstrated by initial stock market listings in 2021, which witnessed one of the best starts to the year since 2008, thereby highlighting that active participation in SPACs is undoubtedly growing. On top of this, with low interest rates and savings on commuting, food and coffee costs, COVID-19 has triggered an increased interest in investing amongst younger buyers.

But with so many SPAC options on the table, which ones are actually worth investing in?

  • Stable Road Acquisition Corp – Expected to merger with Momentus. Momentus is a pioneer in space transportation and infrastructure technology and is at the forefront of space commercialisation. With an experienced team of aerospace, propulsion, and robotics engineers, Momentus developed a cost-effective and energy-efficient space transportation system based on a water-plasma propulsion technology.
  • Social Capital Hedosophia Holdings Corp. V – Expected to merger with SoFi, a leading next gen financial service platform. SoFi’s mission is to help people achieve financial independence by taking correct money management decisions. This is a one-stop member-focused financial service hub that includes loan refinancing, mortgages, personal loans, credit cards, insurance, and investment and deposit accounts, with over 1.8 million users.
  • Property Solutions Acquisition Corp – Expected to merger with Faraday Future.  Faraday Future is a global smart mobile ecosystem company, the mission of which is to change the aspects of digital life when it comes to cars. The company already has a powerful portfolio of revolutionary value-added technologies, protected by nearly 900 patents worldwide.

The future for SPAC transactions is therefore likely to be bright as private companies increasingly look towards SPAC IPOs as a viable option to go public. With a growing number of players entering the SPAC space, the SPAC frenzy is only gathering pace.


[1] https://www.ft.com/content/321400c1-9c4d-40ac-b464-3a64c1c4ca80

[2] https://seekingalpha.com/news/3656255-piper-sandler-spacs-look-bubble-like-but-may-boost-goldman-sachs-and-evercore

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Business

HOW NEW DATA SOURCES CAN ACCELERATE OUR JOURNEY TO RECOVERY

Jonathan Westley, Chief Data Officer, at Experian UK&I

With the growth of e-commerce and streaming of everything from music to films, online subscription services have become increasingly popular. According to research published by Barclaycard, Britain has become a nation of super-subscribers – spending over £550 a year on new digital services and signing up to an average of seven services per household.

Although interesting to see, these numbers aren’t surprising. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.

What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to utilise the financial information created through the payment of subscriptions and other digital services to help lenders to understand affordability in a more robust and intuitive way. One which is more appropriate for the digital age.

By building out financial track records with these new sources of information, lenders are able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. For the individual, this has the potential to help them access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.

Challenges to greater data sharing

While the above provides a compelling case for greater data sharing between consumers and financial services organisations, we know there are several entrenched challenges to this.  

Firstly, people will only share information if they fully understand the terms of the exchange and place a high enough value on the product or service they receive in return. This value must also outweigh any risk they perceive in sharing. This delicate balance is known as the ‘consent equation’.

While sharing information on their subscription payments could present real value for consumers, enabling them to access more affordable credit, these benefits need to be communicated clearly. Organisations also need to face the risks that people may perceive in how their data is used, shared or stored, and address these through communications. 

Process or user experience can be another significant barrier to data sharing. While robust security protocols are paramount, organisations do need to consider the journey people must complete to share their information. Make this too arduous, and people will drop out part way down the road. 

Taking the first steps towards the future

While substantial, these challenges are not insurmountable – and the potential benefits to consumers and lenders make overcoming them well worth the effort.

We aim to lead progress in this area with the launch of Experian Boost. The free service uses Open Banking technology to allow consumers to factor information on regular payments, such as their council tax or Spotify subscriptions, into their credit scores. Any information submitted is only used to this end, and to improve rather than negatively impact users’ scores.

In the current context, this information could be vital. While the furlough scheme and its extension over the summer will continue to cushion the financial blow of the pandemic for many, lenders may still see an uplift in the number of people requiring some form of support.

Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires a full understanding of a customer’s current circumstances and financial exposure, and therefore the breadth of their indebtedness across all credit commitments.

New data sources created through digital subscription services, as well as those available through Open Banking data sharing, can be harnessed to help develop better credit options for consumers. Experian Boost is evidence of this. The next step of this journey is helping more people to add their own consumer contributed data directly to their credit files and improve their credit scores. By embracing the use of these new and relevant sources of information, made possible through the proliferation of digital services, lenders will be in the best possible position to adapt to the changing consumer landscape and accelerate down the road to recovery.

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