Socially Responsible Investing: Is It Your Duty to Finance Your Grandkid’s Future?
Everybody knows the role of banks is to lend.
Apple, Google, Microsoft and Facebook got their start from private investors. As they grew and needed to expand, the banks lent to them so they could grow.
The financial crisis changed all this. Banks have done everything they can to avoid taking risk. Unfortunately, this also means they no longer lend to small businesses.
Instead of lending, the banks have found it more profitable to get every dollar they can from consumers who bank with them. Instead of lending to small businesses, they now sell credit cards, investments and insurance products to consumers. The horrible part about this is that you have to have a bank (we just recommend not using one of the big ones).
It’s not George Bailey’s bank anymore.
Lending to finance the future is literally the backbone of our economy.
It is a fundamental belief that the future will be better than the present which allows investors to make a bet on the future.
After talking to economists and portfolio managers (with skin in the game), we feel higher rates are coming with an improving economy and inflation. This means investors in traditional US government and corporate bonds are likely in for an unpleasant surprise.
It also means you need to take the insurance salesman’s hypothetical showing returns above 5% with a grain of salt. If I were you I would ask how much is the guaranteed return (hint its more like 3%).
But all is not lost. By investing with boutique firms and in the debt of these growing companies we feel we can reduce overall portfolio risk in a similar fashion we would with traditional bonds.
It’s even better than that. If you have kids in high school or college or grandkids who are even younger, this is personal. Providing financing for these growing companies helps them to be successful and will provide more opportunity for our kids and grandkids.
We believe it is our social responsibility to do our part. One way is by investing in the stocks of small growing public companies around the world through firms like Grandeur Peak.
Another way is to provide credit to strong private companies (who aren’t big enough to get financing from the big banks but who are backed by the strongest angel and venture capital companies in the world). We have partnered with Pimco and Rivernorth to access this.
The investments we are making are limited in scale and many simply not available at the big banks, brokerage firms and insurance companies.
The need is substantial, $1.7 trillion. (equity and debt).
What this means for our clients is that we can have our cake and eat it to. We can help our grandkids by providing these companies with needed capital. We also believe we can get risk adjusted returns doing so.