- Rekha Unnithan leads Nuveen’s impact investing team which oversees nearly $US1 billion in assets.
- Unnithan says her investments include affordable housing, microfinance, and investing in technology to lower the cost of remittance for migrant populations.
- She says the biggest misconception about impact investing is that it means giving up returns.
Sara Silverstein:I am here withRekha Unnithan, the impact investing portfolio manager for Nuveen. So you manage a nearly billion dollar portfolio focused on impact investing. What exactly is impact investing, and how does it differ from socially responsible investing?
Rekha Unnithan:So impact investing is one facet of the socially responsible investing spectrum, if you will. Impact investors are looking for intentional outcome orientation with respect to the investments they choose to make. It’s providing a certain good or service to a part of the population that may be largely underserved. It may be innovation using technology. It may be looking at themes like climate change and energy efficiency to create a product or services that doesn’t exist today or needs to be improved upon.
Silverstein:So can you give me some examples of the types of deals that you’re looking at for your portfolio?
Unnithan:Yeah, I can give you two examples that make up a big part of our portfolio strategy. In theUnited States, affordable housing is a big area of focus for us, and really it’s preserving existing affordable housing stock. One in four households in theUSdoes not have access to affordable housing, i.e., they’re paying more than30%of their income onrents. Which basically means they’re spending less on other important things like education, health, access to good and healthy food. And so affordable housing preservation is taking existing affordable housing stock and keeping it affordable for the long term, making those apartments available to families that are working, that arethefabric of our society, creating a safe place for them to live, and for those communities to thrive.
Silverstein:And what does an investment in that look like? Like who are you giving money to, and what are they doing with it, and then how do you measure what success they’re having in keeping that housing affordable?
Unnithan:Yeah, so an investment in affordable housing is actually investment in the property itself. It’s finding the operators and developers who are focused on this asset class, who believe that there is an attractive investment story there, who believe that the real estate itself is very attractive becauseit’sbuilt in a way that’s sustainable, that can be preserved using energy retrofits, it’s a way to make it more efficient. So it’s investment. It’s buying the actual property. It’s managing the property efficiently. It’s, like I said, doing energy retrofits where possible. It’s also creating a community space and resident services for the tenants. So affordable housing will often have underutilized community rooms. So if it’s a family-focused property, it’s a place whereafter-schoolprograms can be conducted so the kids getting off the school bus at4 o’clock have a place to go. If it’s a senior-focused affordable housing property, that’s creating ways for them, for the seniors, to engage both with each other, as well as get access to services, where it’s about Meals on Wheels, or libraries, or things like that.
Silverstein:Is there a trade-off between how much money you can make at something like that, and how much good you can do, and how do you define success, how do you monitor these investments?
Unnithan:In our view, we are not making investments that have any conversation about trade-off. Both opportunitiesneedto exist. So there needs to be an intentional focus on outcome creation. In this case, retaining existing affordable housing stock and making it available, and then financial returns, which is a big part in affordable housing is driven by rental income. So cash-on-cash return from maintaining these properties, and collecting rents. And then over the long term, holding these properties and selling them to another buyer who will preserve them, right? So financial return and impact outcomes for us go hand-in-hand. With respect to metrics that we would look to monitor, for affordable housing, for instance, is the percentage of income these tenants are paying for rent. The energy retrofits that have been put in place in those properties to make them more efficient. The walk score and the transit scores of the properties. So where are these properties located relative to access to transit, good schools, etc.
Silverstein:And can you give me an example of something else that’s in your portfolio that is a good example of being able to make money and also benefit a community inside or outside the US?
Unnithan:Oh, absolutely. So 40% of our portfolio is in emerging and frontier markets, economies where there’s a ton of growth, and financial inclusion is one theme that really plays out in our portfolio. Essentially it’s providing access to credit, savings, insurance to marginalized groups, so groups that are not part of the mainstream financial systems. So one might have heard of the concept of microfinance, which is essentially providing credit to groups of women who we believe are credit worthy, but don’t have access to bank accounts and credit, and so that’s one type of investment in our portfolio where it’s group lending. It’s groups of women who take out a loan, who are responsible for repayment of that loan, and then use that for working capital for their small enterprises, which they often operate out of their own homes. So that’s one example of an impact investment. Another recent investment we made is in the remittance space. So migrant populations would leave their home countries, from sub-Saharan Africa or Southeast Asia, and move to developed nations, like theUSor theUK. People like taxi drivers need to send money back home, right? And the average cost of remittance from mainstream remittance providers is7-12%of cost of funds. That’s a lot of money that you’re giving away to just send money back home. So we made recently an investment in anonline-basedremittance provider that basically focuses on channels in sub-Saharan Africa and Southeast Asia that is looking to lower the cost of doing this to 4% or sub 4%. So more money in the pockets of the working poor, and really this is enabled by leveraging technology to deliver something that required abrick-and-mortarapproach in the past.
Silverstein:And how did you come to be in charge of all this? What was your interest in impact investing and when did that start?
Unnithan:So I grew up in emerging markets, I grew up in Bombay, and studied economics at Yale, and my senior year, Itook a class in developmental economics, which really shaped my curiosity about the sector. That’s where I first learned about microfinance. I learned about traditional economic development and aid, and it sparked this interest to figure out how do you tie capital to some of the biggest challenges facing our people and our planet, if I may say so. And so I had been searching for ways to get involved in impact investing, and at Nuveen, we – Ihelped design basically the portfolio that we’ve been implementing today, and we continue to do really innovative work here because now the sector is maturing, and a lot more people are at the table having this conversation, and we’re excited to be a part of it.
Silverstein:And how do you decide what the goals of the portfolio are?
Unnithan:The goals of the portfolio were designed really to address our ability to do this well. Where we could play a leadership role in terms of the type of capital we were willing to provide, which is long-term in nature. The risk-adjusted returnswe needed to see from those portfolios, which drove sector selection. So some of the sectors I described before provide those opportunities. And frankly, it was also the expertise that we had in-house, right? Investing in private equity, investing in real estate are things that a firm like Nuveen does well, and so we thought when we play a leadership role in impact investing, it should be an extension of that expertise.
Silverstein:And do you have any advice for people that want to have an impact but don’t have access to say like a private -your fund, or things like that, but want to have a positive impact when they’re investing? Is there anything that they can do to get over that hurdle and figure out what they’re doing?
Unnithan:Yeah, absolutely. So theUNlaunched the Sustainable Development Goals in 2016, basically the roadmap for, once again, challenges and opportunities facing our people and our planet, and it has 17 goals that provide framework for things that are much needed, right? So as investors think to place capital, it’s one way to articulate where they want to invest. Is it around issues of hunger, poverty, income inequality, sustainable cities? So the SDGs, the Sustainable Development Goals, provide a framework to have the discussion with financial advisors, investors, and really that is picking up because corporations are talking about it, governments are talking about it, so are investors.
Silverstein:Great – and last question. What do you think people get most wrong about impact investing
Unnithan:I think what people get most wrong about impact investing, and this is slowly changing, is that impact investing must mean giving up returns, that it’s some sort of philanthropic tool. We really see impact investing as really being an investment discipline like every other one is coming-of-age, right? It’s taking into account material and intentional outcome orientations. And while impact investors could choose to have subsidized returns, they could also choose to haverisk-adjustedreturns, and that’s a growing theme.
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