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FINDING ETHICAL ALPHA USING INTEGRAL INVESTING METHODS
May 12-13, 2014, St. Augustine, Florida
Mariana Bozesan, Ph.D., M.S.Head of AQAL Investing Family OfficeFounder & General Manager, AQAL CapitalClub of Rome intl. full memberwww.AQALcapital.com
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
• Financial crisis lead to fear and uncertainty- Falling revenue and margins- Massive capital migration
• Frustrated wealth owners losing trust in their asset managers• Alternative and customized investing are on the rise• Traditional investing often focused on short-term profit
maximization at the expense of long-term health of global community, culture, environment, ethics, and overall human happiness
• Traditional investment metrics often missed sustainable, time-based businesses and responsible investment opportunities
• Many traditional asset managers failed to develop a core competency in alternative investing opportunities including impact investing (SRI/RI/ESG)
5
Profit
TRADITIONAL INVESTING
Profit Metrics
e.g.
WALL STREETBERKSHIRE-HATHAWAY
KKRSEQUOIA CAPITAL
Source: Mulcahy, D. & Weeks, B. & Bradley, H. S., (2012, May). We have met the enemy …. And he is us: Lessons learned from twenty years of the Kauffman Foundation’s investments in venture capital funds and the triumph of hope over experience. Kauffman Foundation Research
IMPACT INVESTING IS FRAGMENTED IN TERMS OF MOTIVES AND APPROACH
Two types of Investors:1. Financial (Profit) First Investors
- Pursue the optimization of financial returns before having an impact floor
- Investors “are not willing to accept lower than market returns as a cost to optimizing social or environmental goods, although they still make a positive impact”
2. Impact (People/Planet) First Investors - Seek to optimize social and environmental impact
with a financial floor- For greater impact, investors are willing to accept
Integral Investing is based on Ken Wilber’s Integral theory that is widely applied in 50 disciplines including science, politics, economics, education, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company. Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala.
Integral Metrics
Planet
People
Profit
Ethics, Ego, Emotions &
ConsciousnessBehavior
ExteriorInterior
Indi
vidu
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ve Culture & Morals
INTEGRAL INVESTINGAQAL Investing, Natural Investing
*Source: Sisodia, R., Sheth, J., Wolfe, D.B. (2007). Firms of endearment: How world-class companies profit from passion and purpose. New Jersey: Wharton School, p. 16; **Source: Mackey, J., & Sisodia, R., (2013). Conscious Capitalism: Liberating the heroic spirit of business. Boston: Harvard Business Press Review.
15 Year 10 Year 5 Year 3 Year Cumulative Annualized Cumulative Annualized Cumulative Annualized Cumulative Annualized
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
The disaster of 2007/2008 nearly ruined the global economic system– By Oct. 2008, about $25 trillion were obliterated from the value of stock markets
What started with an initial liquidity crisis lead to – The disruption of capital flows– The collapse of the “too big to fail” financial organizations incl. Lehman Bros., Fannie Mae, and
Freddy Mac– Severe downturns in the global casino/stock markets world wide– Currency crunches, failure of major businesses , global recession including the European sovereign-
debt crisis (Ireland, Portugal, Greece, Spain, Cyprus, etc.) – LIBOR, Madoff scandals– No end in sight!
Q: How sustainable are our financial and economic systems?
We continue to emit twice as much CO2 in the atmosphere than can be absorbed by our forests and oceans with disastrous consequences for the earth’s ecological balance:– Global warming at accelerated speed can lead up to 2-4 degrees Celsius in this century– Ongoing droughts
Water is becoming more important than petrol
– Ongoing hurricanes, floods, rapid melting of polar ice caps lead to the raise of ocean levels
It took Europeans 1000 years, the UK 100 yrs., Germany 70 yrs., Japan 50 yrs., and it took China only 6 years to double its economic output
China’s resource hunger is not only a media eventIts GDP has doubled 6 times since 1978By 2017, it will need more resources and will produce more goods than in its entire history all together!
OUR TRUE PROBLEM: LACK OF AWARENESS REGARDING THE IMPORTANCE OF EXPONENTIAL GROWTH
With every duplication, the quantity added is LARGER than the entire compounded previous quantityThe megatrends in the 21st century are:– Exponential population growth– Exponential economic growth– Exponential consumer growth: During the last 40 years, we added
3 additional Billion consumers
We have reached our physical Limits to Growth on our planet
EVOLUTION OF CONSCIOUSNESSRESEARCH ON PRIVATE EQUITY INVESTORS
138 investors: 50% men – 50% womenGlobal investors from USA, Canada, Germany, China, India, France, Thailand, Bali, Singapore, Turkey, Dubai, Ireland, SwitzerlandHigh-tech, clean-tech, music, beverage, health care, Wall street financiers, lawyers, music industryActive philanthropists and social entrepreneursStanford, MIT, Harvard, Sorbonne, etc. graduates– 45 doctorate degrees, 60 MBAs, other Master’s degrees
“horrible divorce,” death of “mother” or “wife,” “high-degree anxiety,” “worry and fear,” “heartbreak,” tension between “fear and desire,” “grief,” the “need” to be accepted by the outside world, “frustration,” “lack of trust,” “lack of joy,” “deep sadness,” “lack of alignment,” “lack of fulfillment,” “completely unhappy”
“I wasn't manifesting why I was here” “I was following a script that wasn’t authored by me”“While there were fun things like building new markets and I really enjoy business, there was this sort of almost mind numbingly impossible monotony around the trajectory that I was on”“I had enough intellectual understanding that the gold rings were running out”“There’s fewer jobs left” in the world“There was a growing, gnawing, unfulfillment of maximizing shareholder value”
“Lightning bolt [that] moved through my body” “Out-of-body experience … that really showed me very clearly that I am not my body”“We proceeded to have a conversation where he read my mind and responded so I never opened my mouth”“Feeling [that] would be so powerfully strong that it was almost to the point where you couldn’t walk” “Mystical experience,” “divine light,” “divine intelligence,” the “heart was exploding with love,”“My body turned into an intense beam of light”“My heart opened and I could feel every bird and insect as part of me”
They had no framework to understand what was going on and a “quantum leap in consciousness” was the result
“This [journey within] was like drinking out of a fire hose. In this area, MIT and Stanford Business School were like drinking out of a fire hose for academic and business issues. This was like drinking out of a fire hose for emotional, spiritual and consciousness issues. We need both.”
Demystifying the landscape of rather confused investors, businesses, and societyUnderstanding the hidden determinants, context, and trendsUnleashing the power of the integral model for de-risking early-stage investments
THE AQAL MODEL & DUE DILIGENCE PROCESS INTEGRATED INVESTING IS HONORING THE TRUTH IN ALL THERE IS
Integral Investing is based on Ken Wilber’s Integral theory that is widely applied in 50 disciplines including science, politics, economics, education, medicine, and business; Ken Wilber is endorsed by Nobel Prize laureate Al Gore, former US President Bill Clinton, former Secretary of State Hillary Rodham Clinton, and is also used i.e. at McKinsey and Company. Source: Wilber, K. (2000). A theory of everything: An integral vision for business, politics, science, and spirituality. Boston: Shambhala.
Integral Metrics
Environmental DD
Social, Stakeholder & Governance DD
Traditional $$$ DD
Individual Consciousness (incl. morals &
values) Due Diligence
Individual & Collective Gap
Analysis & Report
ExteriorInterior
Indi
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llecti
ve Organizational, Cultural & Ethical
Due Diligence (DD)
INTEGRAL INVESTINGAQAL Investing Screening Process
Demystifying the landscape of rather confused investors, businesses, and society
Investors’ convergence
Convergence of business models
Emergence of second tier human consciousness
Understanding the hidden determinants, context, and trendsExponential growth is the driving force
Unleashing the power of the integral model for de-risking early-stage investments
“The Future of Raising Capital: Why GP’s and asset managers must now embrace humanitarian and environmental risk return metrics” We can say they MUST In my view, they will do it only when they reach the level of consciousness that mandates it
to them from within – it is a function of evolution and everybody starts at ground zero!