LBS Impact Ventures Fund: A world-first in business education

The origins of socially responsible investing (SRI) are not new, dating back at least to Biblical times. In that long history, there have been many ‘eureka moments’ when innovative thinking was required to persuade investors to put their money into funds that either eschewed certain industries – such as ‘sin’ industries based on slavery, alcohol and tobacco – or into ventures aimed at promoting a particular social good.

One such moment (and when tertiary education and SRI first came together in a significant way) occurred in the 1960s, when US students protesting against the Vietnam War demanded that university endowment funds should not be invested in the defence sector.

Inspired perhaps by the country’s deep-rooted culture of civic activism, several elite US business schools now not only offer modules on impact investing, but also run experiential programmes designed to teach students how to think like impact investors. The most prominent of these is the MBA Impact Investing & Training (MIINT) programme founded in 2011 by Wharton Business School and Bridges Ventures. This currently sees students from 30-plus leading schools in the US and Europe compete annually to identify one social enterprise to receive a potential investment of up to $50,000. Utilising its strengths in identifying such opportunities – and, indeed, presenting the case for the enterprises it has selected – LBS has a formidable track record in the MIINT competition, placing second twice in the three years it has competed.

But, while there are many alternative financing structures for early-stage impact investing, each presents problems relating to reputational and fiduciary risk for business schools. It was partly through his experience of competing in the MIINT while at LBS that Josh Bell, who is due to graduate this summer, conceived of the LBS Impact Ventures Fund (LBSIV) – not through any single eureka moment, but through a series of crucial insights which culminated in a business-education first: an impact fund which not only gives students the opportunity to gain real-life experience in the field of impact investing and matches funding with social enterprises, but allows the School to participate in a way that vitiates the risk-related issues in raising money from investors. Whereas, to date, schools have sought to raise funding through investment capital, for which investors expect a reasonable rate of return, LBSIV is structured through a donor-advised fund (DAF); hence funds raised are donations, not investments.

This structure affords legal liability protection to the School while allowing faculty and staff to learn from DAF providers in the administration of the funds (with the providers also giving their support in the form of tax, compliance, legal issues and due diligence on investment and portfolio management). And because DAFs are legally structured to be ‘evergreen’ – the donations are irrevocable – any potential investment returns are recycled back into the fund to support future use by students.