A hands-on learning opportunity for students to manage a fund focused on social and environmental impact, Stanford GSB Impact Fund has made its first investment.
Stanford GSB Impact Fund provides hands-on learning for students to gain familiarity with investing for both financial returns and measurable social and environmental returns. | Stanford Center for Social Innovation
The seed funding for Geneticure, a pharmacogenetic testing company centered on personalized medicine, is the culmination of several years of work launching the fund.
Geneticure is working on a better diagnostic test for hypertension, which Dan Liss, MBA ’16 and JD class of ’18, called a “silent killer” that doesn’t always get a lot of attention from pharmaceutical companies. Currently, it can take months or years of going back and forth to the doctor for some patients to get their hypertension under control. The hope is that a test could quickly identify which treatment will work best for which patient.
“We believe this will be an impactful investment because it will address a critical need for underserved, low-income people,” Liss said. “Our hope is that Geneticure can deliver a test that significantly reduces time and costs, in turn improving outcomes.”
The fund’s roots go back about three years, when a group of students asked Loretta Gallegos, associate director for experiential learning at the Center for Social Innovation, if Stanford GSB could establish an impact investing fund. After some research, the school decided to create a fund that is truly embedded within the school, as opposed to the funds at many schools which function more like clubs.
“We want our students to be able to go out and make a difference in the world,” said Paul Pfleiderer, senior associate dean of academic affairs and C.O.G. Miller Distinguished Professor of Finance at the Graduate School of Business. “There are a lot of social needs to fill out there, and it’s pretty clear that the private sector doesn’t always meet those needs — nor does the government and the nonprofit sector. There’s room for impact investments to potentially make a difference.”
Pfleiderer and Kenneth J. Singleton, the Adams Distinguished Professor of Management, are the fund’s faculty directors. The fund also gets substantial administrative help from the Center for Social Innovation, including Gallegos and Bernadette Clavier, the center’s director.
Gallegos worked with six student leaders to figure out the best structure for the fund. “We like to focus on the Impact Fund as an education program and less as a fund that makes investments,” Gallegos said. “We want them to have a robust learning opportunity: understanding the whole process of making the investment.”
The students decided to organize the program into five teams, each with a different focus: urban development, health care, food and agriculture, energy and environment, and education.
To create a truly real-world investing experience, fund investments are approved by the Investment Committee (IC) comprised of Pfleiderer, Singleton, and three alumni impact investors, with the student deal team members having one collective vote. After extensive research on potential investments, each team presented its top recommendations to the IC, and Geneticure rose to the top.
For the students who were instrumental in starting the fund, a key goal was to overcome the “chicken and egg problem” that students face when they want to go into the field but lack experience, said Collin Galster, MBA ’16, who works in the Tokyo office of the Boston Consulting Group.
“The goal of the impact fund is to help students interested in impact investing to get real-world experience so they can get their foot in the door,” said Galster, who worked with Gallegos between his two years in the MBA program on designing the fund and served as founding chief investment officer of the fund during its inaugural year. “We hope that our fund will be the bridge that will get them to impact investment fund jobs.”
The money for the fund was raised from donors and Stanford GSB. One of the challenges is that unlike a fund that invests in public markets, these investments can’t simply be closed out each year to allow a new group of students to make their own choices.
“The investment must be monitored and maintained until there’s an exit,” Pfleiderer said. “We need to have students focused not just on the initial investment but also on due diligence over the years.”
To keep the program going each year, the Center for Social Innovation recruits leadership and manages the hand-off to rising second-year MBA students as well as MSx students. CSI also coordinates alumni advisors and information management to help ensure continuity.
In addition, working with the fund opens doors for students to talk with a wide variety of companies seeking funding, Pfleiderer said.
Liss, who headed the healthcare deal team that found Geneticure with the help of Swati Yanamadala (MD/MBA ’17) and Hilary Bartlett (JD ’19/MBA ’17), said his committee started by looking at hundreds of companies, then did deeper research on a couple of dozen companies: “We would set up a call to see where they are, what are their fundraising needs, and analyze a set of criteria we deemed essential to our impact investing mission, such as whether the investment would be moving the needle for the company.”
Because the fund is part of Stanford GSB, those involved also have the opportunity to grapple with academic questions. For example: How is impact defined and measured? What kind of financial return should impact investors expect?
“Students tend to have this view that there’s no tradeoff, that there will be a great financial return as well as social impact,” Pfleiderer said. “But if so, then why do we need to fund this? Why doesn’t the venture just get capital from regular investors who are only interested in financial returns?”
On the other hand, if the idea of impact investing is to help fund enterprises that would not otherwise be funded, “there must be a view that you’re willing to trade off some financial returns for greater impact,” Pfleiderer said.
For Catherine Chien, MSx ’16, who worked at a global equities hedge fund prior to business school, the experience with the fund and considering questions like these confirmed for her that she wanted to build a career in impact investing. After graduating, she joined Emerson Collective, where she is responsible for impact investments in sustainability and climate change. Her experience “showed to potential employers that I am committed to making the career change and am equipping myself with the right skills and networks,” Chien said.
— By Margaret Steen
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