The art and science of balancing people, planet and profits
Click here for full article Source credit: impact-workshops.com
16 June 2020 — At 65, Dr Kim Tan is riding on the third wind of his career. Having started out as a biochemist before becoming a biotech venture capitalist, he had thought retirement in 2003 would slow things down for him. But it was not to be. “Retirement is hard work!” he declares when I met him at the London’s Royal Society of Medicine, where he’s a Fellow. He welcomes me warmly, offsetting the mad-professor image that he cuts with his tousled salt and pepper hair. I was mindful that I had about an hour with him before he had to scoot off to a talk he was giving at the British Malaysian Society.
Marathon runners would understand the significance of the third wind – that last burst of energy that surges through the body just when they think they’ve all but burnt it out. Ask him how busy he is today and Dr Tan answers in specifics – he has an average of 80 emails in his inbox daily, he travels for board meetings, meets with his multiple investees, gives talks and teaches in bible schools. Everyone wants a bit of him as a sits as chairman of Springhill Management (UK), Inqo (SA), Garden Impact Investments (Singapore), partner of Novastar Ventures (Kenya) – companies that manage funds for social impact investing, some of which include the sovereign funds of Norway and UK as well as foundations like the Bill and Melinda Gates Foundation and Chan Zuckerberg Initiative. He’s also a leading proponent of impact investing having started the Transformational Business Network that has garnered over 2000 members from around the world – a group of people, Dr Tan describes as “disillusioned philanthropists”.
Social impact investing is an asset class that looks to support businesses with the aim of reaping social and financial dividends. These businesses provide goods or services and employment for the disadvantaged and returns will typically take a longer period than other investments.
Unlike investment bankers, this group of investors, many high net worth individuals, would visit the slums of cities and witness the poverty and dire needs there. “When we come out of the slums,” Dr Tan says, “our shoes need cleaning with bleach!” And the reason these people who sit on the lap of luxury would do this is the realisation that money they had dished with all good intentions have gone down a black hole that just never seems to lift the needy out of poverty.
The key, Dr Tan, is convinced, having done this for almost 20 years, is enterprise, not aid. Being, by his admission, “an egg head”, the trail of evidence leads clearly to empirical findings. He compares the Four Asian Tigers of Singapore, Hong Kong, Taiwan and South Korea to countries in Africa and bemoans the bottomless pit that the latter has been. “Africa has received an equivalent of six Marshall Plans – $2 trillion to $3 trillion worth,” pointed out Dr Tan, referring to the developmental aid the US contributed to western Europe after the second world war. “So, if aid and charity were the answer, Africa should be a very wealthy continent by now,” he concluded.
By contrast, the Asian Tigers were able to pull themselves out of third world into first world status from the 60s to the 90s with rapid industrialisation and high growth rates. Adopting the transferred technologies of multinationals that used these countries as a cheap source of labour in the early years, local businesses have improved on them and today compete with the best in global markets.
Kim Tan (right) chatting with me and husband over coffee at the Royal Society of Medicine.
Through capital, leading in most instances to equity, and mentoring, Dr Tan and his teams have invested in about 30 businesses in Africa and Asia with very clear outcomes – enterprises must reap economic benefits and have the capacity to scale up while producing products or services for the poor and providing employment for them. Your proverbial do good and do well equation. Novastar, his fund management company running out of Kenya, for instance, manages a fund of US$100 million.
One of the star investments of the fund is the largest chain of low cost schools in Africa, Bridge International Academies, an investment Dr Tan made on his own before Novastar was set up. He speaks of it like a proud father citing the higher than average results of the students, all 500,000 of them spread across Africa and India. The schools which started in 2009 provide primary education. “We think for a country to develop, the masses need to be literate,” Dr Tan asserts. Plans are afoot to start a secondary school in Ghana soon.
Other impact investment organisation making inroads into various parts of the world include Acumen Fund, Vital Capital and Alphamundi. And traction is gaining as more investors realise that there now exists an asset class that not only produces decent profits but has explicit social returns. Impact investment in Southeast Asia has seen a spike by private impact investors (PIIs), like fund managers, family offices, banks and foundations, since 2013. In total US$904 million was invested by PIIs in the region during that time in Environment, Social and Governance (ESG). Furthermore, financial institutions like Singapore’s state bank DBS has tailored an ESG portfolio for their next generation of private banking customers who are as concerned about growing the value of their investments as they do about doing good. Observers note that millennials, the next cohort of leaders, are more in tune with social causes than their parents’ generation and see impact investing becoming more prominent in time to come.
His Damascus Road
Kim Tan’s conviction to help the poor comes from his personal experience growing up poor. Being one of 10 children of an immigrant father from China who’d settled in a small town in Malaysia, running a provision shop, Dr Tan is mindful of thrift and the barest minimum to get by. There never was a time when there wasn’t food on the table but the simplicity of life in a rural home certainly made its mark. Dr Tan and seven other siblings received scholarships to study abroad. Dr Tan went to the University of Surrey and completed his doctorate in molecular biology. He made his millions investing in biotechnology as a fund manager and was ready to go into retirement at the ripe old age of 45 when a family holiday to Cape Town changed the narrative for him.
Even as he marvelled at the beauty of the city, he was also not one to shy away from its depravity. Dr Tan insisted the family visit a slum to see the other side of life. And it wasn’t so much the deprivation and the unsanitary conditions that shocked him but it was the work done by the non-government organisation, whose representative had taken the family there, that confounded him.
“What I saw just disillusioned me,” Dr Tan revealed. “These were good hearted people, good intentions, really sacrificial people but they were teaching people to make clothes by hand – furniture, craft, shoes – by hand! Quality wasn’t there, quantity wasn’t there. And I thought, nothing’s going to change. We can give them as much charity money as we can each year, nothing’s going to change.”
As it turned out, that experience became his turning point. “That was my Damascus Road moment,” said Dr Tan, referring to conversion experience of the biblical apostle, Paul. The futility of his giving until that moment hit him hard. “When you have some money the easiest thing to do is to write a cheque and feel good about yourself. What’s really hard is to give your time. That was really the beginning of a call to change career.
“I felt very clearly I was not to do anymore charity. I was to invest in the poor, in helping to build businesses among the poor that are sustainable and scalable. I fell in love with South Africa and thought I need to come back and build my first business here,” said Dr Tan.
Two years of research and meetings led him to Addo Elephant National Park, the third largest national park in South Africa where, working with the local government, he bought up land and began to build a safari park with a luxury accommodation in it. Kuzuko Lodge was built with guests footing US$400 a night. 39,000 acres of land was fenced up, the Big 5 – lions, leopards, rhinoceroses, elephants, and buffaloes – were reintroduced for the first time in 150 years. It was a painstaking process but one whose results Dr Tan is able to be proud of. Not for the financial rewards which Dr Tan said would only come 15 years after his first investment there, but for the social and economic benefit to the community.
“We genuinely wanted to come to help this very poor community. Several thousand population, 85% unemployment, 30% HIV AIDS.” Today, Dr Tan says Kuzuko is the largest employer in the district, intentionally hiring AIDS orphans and training them to be chefs, hotel staff and rangers.
The journey growing the business hasn’t been easy. “You’ve got to be really patient. They can let you down. They’ll fail you. They’re going to be drunk. They’re going to be stealing from you,” revealed Dr Tan, but it seems to be all in a day’s work for him. “This is what patient capital is about,” he shrugged, his eyes still on the goal. “In the end, you have to be profitable. Otherwise you become a charity.
On what he learnt through the arduous process: “I learnt not to do it again. If you knew what was going to be involved you wouldn’t start,” he said, half-jokingly. Click here to continue reading
Source credit: impact-workshops.com