Credit Suisse chief executive, Tidjane Thiam, made a statement of intent when he handpicked the bank’s former co-head of EMEA investment banking and capital markets, Marisa Drew, as CEO of a new impact advisory division in September last year. Her appointment coincided with the bank’s 15th anniversary in impact investing and microfinance and comes at a time when Asian private client demand for impact strategies is gaining momentum. In her first interview with media in Asia, Drew told Asian Private Banker that the way forward will necessarily involve experimentation, iteration, and education.
Marisa, why do you think Tidjane selected you for this role?
It’s a fair question and one that I asked Tidjane. Why me? I am the old school, profit-minded investment banker so this role was not the most obvious nor a linear next career step.
You have also been ranked among the 11 most influential women in finance.
Don’t believe all you read! I think some of this recognition has come from the fact that over the years, I have raised well over $150 billion of capital in the markets for my clients. As I think back across the bulk of my career, much of what I was doing was providing lifeblood capital to early stage high growth companies. My industry focus has largely been in the media and telecoms sector, with a particular concentration on the big infrastructure build-outs of cable and mobile platforms around the world including in developing markets.
As I think back across the bulk of my career, much of what I was doing was providing lifeblood capital to early stage high growth companies.
And from what I understand, you played a formative role in building the leveraged finance asset class in Europe?
Yes, I started my career in the US, but as cable and mobile licences began to be issued abroad, I increasingly found myself raising capital for European issuers. The challenge at the time, however, was that we were raising money for European companies but selling the transactions to US investors. This was not always a natural fit. After commuting to London weekly for 18 months and seeing the massive growth potential of the European market, it struck me that the dynamics were right to support a truly standalone Europe leveraged finance asset class. I believed strongly enough in this thesis to make a career bet and move to Europe to try to realise the vision.
As with any new market, progress came in fits and starts. In the early days, the leveraged finance business in Europe was largely built on TMT issuers, because at the time, the voracious users of capital were these companies building out their networks. The rest of the industrial sector was very un-levered, and the concept of utilising leverage to generate shareholder returns hadn’t really been embraced by finance directors and chief executives in Europe outside of the TMT sector. When the TMT bubble burst in 2000, the leveraged finance market crashed with it. Ultimately the market came back but with a much more diversified industry representation, which is critical to a healthy market.
A lot of the lessons learned from building the leveraged finance market are actually quite applicable to this sector, and I think Tidjane had the vision and foresight to see this. I think, in me, he saw somebody who has built businesses, someone with expertise in the capital markets and in structuring, someone who has a track record of innovating in new markets and someone who can figure out how to get capital to where capital is needed. On reflection, it didn’t take a lot of convincing when I thought about what I wanted my legacy to be and that I could bring my 30 years of banking experience to making a difference in the world.
A lot of the lessons learned from building the leveraged finance market are actually quite applicable to this sector, and I think Tidjane had the vision and foresight to see this.
Bearing in mind that your role encompasses all divisions of the bank, I’d like to focus on the private banking piece of the puzzle, and specifically how you intend to address what is a nascent, but slowly growing, demand for impact strategies from private clients.
The Impact Advisory and Finance Department has been established to serve all of our divisions, but the private bank is mission critical — especially in Asia. I see myself as having three client constituencies: wealth clients, institutional investors and corporate clients. The reason I am emphasising this is that there is synergy across all three constituent groups, each of which also has different needs and requirements.
But if we focus specifically on private clients, the dialogue around impact investing tends to begin with clients’ desire to leave a legacy; and when they start to think and talk about legacy, they do so through the lens of their passions which, of course, varies widely from person to person. So if we are going to serve that client constituency effectively, we need to figure out a way to create investable opportunities in the various verticals that they care about (such as education, financial inclusion, the environment, etc). Then, if a client comes to us and says she wants 5% or 100% of her portfolio invested in the ESG or impact arenas, we can offer a range of solutions across an entire spectrum of verticals to allow for a diversified portfolio. Additionally, we strive to be able to offer a diversified mix of public and private, liquid and illiquid investable options. That said, much of the available impact opportunities that exist in the market today are illiquid investments.
On the one hand, you could say private wealth individuals should more ‘patient’ capital in the sense that they don’t have a fiduciary obligation to be able to actively trade in and out of their investments (like institutional investors have). That is in theory – but often, the beneficial owners of investable assets will manage them through a family office and often the manager of the family office acting in a fiduciary capacity will say “Yes, we want to invest for impact, but we also want liquidity”.
[I]f we are going to serve [the private] client constituency effectively, we need to figure out a way to create investable opportunities in the various verticals that they care about.
One of the more common observations is that there is a real dearth of available structures. Yes, we do see the odd bespoke solution, but there is a real need for larger scaleable funds or other opportunities to invest in.
That’s right. When you are starting a market, things typically start out small. You experiment, you prove some success, and then you do the next one, and it’s bigger. Or you create an evergreen or open-ended version of a successful structure once it works. That’s the way this sector is developing.
And from your perspective, is scale kicking in?
At the moment, the sharp end of the impact investing spectrum is very much about small projects – sometimes a half a million to a few million in total size – which isn’t where we are going to serve our largest clients who are looking to invest in a meaningful way. If we are going to make a difference in the world, we also need to be galvanising big pools of capital. And that is largely resident with the institutional investor community. Institutional investors have two key criteria. The first is the need for liquidity, and the second is the desire to invest at scale. The largest institutions really want to be writing checks for US$200 million at a time. This is an area of focus for my team. If I am structuring something that meets the requirements of the institutional investor community, I also believe it will attract private wealth clients in due course.
When it comes to private client awareness and interest in sustainable investing as a whole, it’s fair to say that there are also pronounced geographical differences. Asia is behind Europe and the US in terms of actual allocation into impact strategies, although momentum is gaining. You have been in the region with your ear to the ground; so what have you learned and what is the current state of discussion?
I think you are absolutely right that Asia is at an early stage on the journey. There is an extremely high level of curiosity, but at this point, I’d say early days in terms of how much the overall client base is invested in impact. Some of this is chicken and egg thing: there is certainly the desire but there is a dearth of investable products in the region.
These things will develop in tandem. It’s the same pattern we have seen elsewhere. If I were to pick regions or countries that are ahead, it would be Switzerland and the Nordics followed by the rest of Western Europe and the US, especially in the Green economy. Asia is definitely behind these markets but as we’ve seen with other asset class and thematic growth in Asia, I predict it will catch up quickly.
There is certainly the desire [in Asia to make an impact] but there is a dearth of investable products in the region.
Sticking with the chicken and egg analogy, just how important is it that you are able to demonstrate measurable impact or a track record of impact from existing strategies as a means to stimulate further client uptake?
Success breeds success. You are familiar with our Asian Impact Investment Fund (AIIF) — a joint venture between Credit Suisse and UOB Venture Management which raised US$55 million at final close. Raising the capital for that fund was an education process which took time because as a first-time fund there was no track record — also the concept of a regional impact PE fund had not been done in the region before.
But guess what? You demonstrate success and return, and the next one becomes easier, and they keep growing in size.
What did the AIIF experience teach you with regards to the structuring, the positioning and the selling?
I am very pleased with the investments we have made thus far. Really thrilled about the quality of the entrepreneurs, the quality of the businesses, the impact they are making and the scale they are achieving with what they are trying to do — it’s quite extraordinary. And when we go to raise for the next fund, we will do it on the back of this success.
What we learned — and by the way, this is not inconsistent with other impact funds raised in other jurisdictions — is that when people are entering into the journey of impact investing, if you talk about the impact first and financials second, the conversation becomes that much more difficult. However, if you start the conversation with the goal to achieve market-based returns and then bring in the impact aspect, it’s much easier to sell. Investors are used to generating market returns, but the icing on top is the impact you can make through this investment.
[I]f you start the conversation with the goal to achieve market-based returns and then bring in the impact aspect, it’s much easier to sell.
Your point here would seem to challenge a perception held by some that impact investing can cannibalise purely philanthropic giving. The point is that if the most effective entry point for impact investing is market returns, then both philanthropy and impact investing can happily co-exist.
I agree but it depends on your starting point with the capital you are allocating. There is a human nature element and desire to make an impact, I believe, on the part of most investors. But if you are thinking about impact investing as part of your traditional investing pool of capital, you do not want to begin with a concession on returns.
At the same time, there are some clients who prefer to think about entering the impact investing space with their philanthropic capital. So then the rationale is different — i.e. if they are otherwise going to give that money away, why not try impact investing — if they can generate a return on that capital, isn’t that fantastic, because the returns can be recycled back into making a bigger impact. And if for some reason, the returns didn’t come out as you thought they would, you were going to give it away anyway.
Asia is exactly where Europe was five years ago, insofar as many of our clients in the region who I speak to tend to segregate their philanthropic capital into one pocket and their returns-based investing capital into another. Today in Europe, what we are seeing is a philosophical convergence — i.e., that investing to do good in the world and generating returns from that investing are not mutually exclusive. As more awareness and more evidence of returns can be demonstrated in Asia, this view of convergence should come, but we are not quite there yet.
Do you view ESG investing as a stepping stone to impact investing?
Yes, I do. ESG is where a lot of clients enter the realm of responsible/sustainable investing because it is “relatively easy” in some respects. You can screen listed securities negatively for investments which do not align with your values or you can proactively say that I will only invest in companies that positively meet a set of criteria, and you can define that set of criteria quite easily with your financial advisor. But when you move into impact investing whereby the investment is often illiquid, longer-term in nature and is designed to create a measurable impact whilst generating a return, much more education and discussion is required.
Privately, and notwithstanding overtures from leadership, a lot of bankers in Asia are less enthusiastic about the medium-term business case for ESG investing, perhaps citing perceptions around performance and lack of definitive benchmarks. They are also incentivised to follow the path of least resistance. This hasn’t stopped a number of banks pushing forward with their sustainable investment agenda. Do you think client traction is best achieved through a top-down push or by gradually stimulating bottom-up demand?
Having it come from both the top of the bank and from clients is clearly the best. If bankers are engaging with their clients on this topic it will most certainly stimulate demand. Equally, if clients say they care about sustainable investing (and increasingly they are), then the banks and their relationship managers must respond. What is critical is to ensure that the bankers who interface with clients are well informed on the subject so they feel comfortable raising it in discussion with their clients. Education backed up by good data is critical to building confidence.
What is critical is to ensure that the bankers who interface with clients are well informed on the subject so they feel comfortable raising it in discussion with their clients.
Given what we have discussed, what can we expect from Credit Suisse in the coming 12 months in the impact investing space?
My goal is to continue to add to the client offering by introducing more bespoke products across more verticals and asset classes. We will continue to support fund managers such as what we did 15 years ago when we co-founded the first impact fund manager called ResponsAbility. Since then, we have added other impact funds to our platform such as those from Blue Orchard and WHEB. We have the aforementioned AIIF private equity fund and when this is deployed, we would hope to launch another impact PE fund that should be another step up in size.
In addition, an area that is not yet well-travelled in Asia but I suspect will be in due course, is blended finance. The idea of blended finance is that you can marry donor or grant capital with for-profit capital in the same structure, thereby crowding-in capital. In the impact investing space, there are sometimes risks or returns that may be unacceptable for the for-profit capital world, but if a non-profit could take on that risk or provide some other kind of credit support, then it can become a scale play. So this is another area where my team are spending quite a lot of time collaborating with partners on innovative investable structures.
Finally, in the realm of partnering with others, we just announced a collaboration which has the potential to make an impact in a different but innovative way. Credit Suisse and the World Bank Group have just launched the Disruptive Technology for Development (DT4D) Challenge Fund. This initiative will use donor capital from our clients to support the matching of disruptive technologies from the world’s leading tech companies with World Bank projects in frontier markets, thereby significantly enhancing the impact those project can achieve.