Finding ethical alpha using aqal investing

© 2014 AQAL Capital. Strictly Confidential.
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 Office
Founder & General Manager, AQAL Capital
Club of Rome intl. full member
www.AQALcapital.com

© 2014 AQAL Capital. Strictly Confidential.
THE FUTURE OF RAISING CAPITAL:
WHY GP’S AND ASSET MANAGERS MUST NOW
EMBRACE HUMANITARIAN AND ENVIRONMENTAL
RISK RETURN METRICS
Mariana Bozesan, Ph.D., M.S.
Head of AQAL Investing Family Office
Founder & General Manager, AQAL Capital
Club of Rome intl. full member
AQALcapital.com

© 2014 AQAL Capital. All rights reserved. Strictly Confidential. 2
OUTCOMES TODAY
Demystifying the landscape of rather confused investors, businesses,
and society
Understanding the hidden determinants, context, and trends
Unleashing the power of the integral model for de-risking early-stage
investments

TREND #1: INVESTORS’ CONVERGENCE

TRADITIONAL INVESTING IS CHALLENGED
• 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)
4
Profit
TRADITIONAL
INVESTING
Profit Metrics
e.g.
WALL STREET
BERKSHIRE-
HATHAWAY
KKR
SEQUOIA 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
lower than market financial returns
IMPACT
INVESTING
Sustainability Metrics:
ESG
Triple Bottom Line
Profit
People
Planet
e.g.
GRAMEEN BANK
TRIODOS BANK
GLS BANK
BANK SARASIN
*Definition after (Eurosif, 2010, p. 7)

The integration
between Traditional Investing
and Sustainable Impact Investing is
needed in order to fulfill the needs
of leading edge investors today

AN INTEGRATED APPROACH TO INVESTING
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 &
Consciousness
Behavior
ExteriorInterior
IndividualCollective
Culture &
Morals
INTEGRAL INVESTING
AQAL Investing, Natural Investing
Profit
TRADITIONAL
INVESTING
Profit Metrics
IMPACT
INVESTING
Profit
People
Planet
Sustainability Metrics
ESG, IRIS, SAM
Triple Bottom Line
e.g.
GRAMEEN BANK
LGT VENTURE
PHILANTHROPY
e.g.
TRADITIONAL
WALL STREET
BANKS
AND
VENTURE CAPITAL
FIRMS

AWAKENED INVESTORS HAVE APPEARED, OCCUPYING A SPECIFIC
POSITIONING AND SHOWING PARTICULAR DRIVERS
10
FINANCIALRETURNS
SOCIAL, ENVIRONMENTAL, ETHICAL, CULTURAL, & HAPPINESS IMPACT
PROFIT FLOOR
“FINANCIAL FIRST”
IMPACT INVESTORS
Optimize financial returns
while maintaining an
impact floor
Philanthropy
LOW
HIGH
LOW HIGH
Pure Philanthropy
Pure Financial
“IMPACT FIRST”
IMPACT INVESTORS
Optimize social/
environmental impact
while maintaining
a financial floor
INTEGRAL
INVESTORS
Optimized, risk adjusted
financial returns and
premium impact returns
IMPACTFLOOR

TREND #2: CONVERGENCE OF BUSINESS MODELS

SOCIAL
ENVIRONMENTAL
PROFIT
ETHICS
EGO
EMOTIONS
CONSCIOUSNESS
BEHAVIOR
ExteriorInterior
CULTURE&
MORALS
PROFIT
TRADITIONAL
BUSINESSES
SOCIAL
BUSINESSES
INTEGRALLY ACTING BUSINESSES
(ESG/PRI DRIVEN )
e.g. DM, Puma, Whole Foods,
Patagonia, REI
SOCIAL
ENVIRONMENTAL
e.g.
ENRON
BP
MONSANTO
PHILLIP MORRIS
e.g.
GRAMEEN BANK
OWNERS
LGT VENTURE
PHILANTHROPY
PORTFOLIO
COMPANIES
BUSINESS INTEGRALIZATION

PREMIUM RETURNS FOR INTEGRALLY ACTING BUSINESSES
*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
FOE Return 1646.1% 21.0% 254.4% 13.5% 56.4% 9.4% 77.4% 21.1%
GTG Return 177.5% 7.0% 14.0% 1.3% -35.6% -8.4% -23.2% -8.4%
S&P 500 Return 157.0% 6.5% 30.7% 2.7% 15.6% 2.9% 10.3% 3.3%
Note: Company returns are total returns with dividends reinvested and compounded**
Sample: Whole Foods:
+40%
Higher ROI than FoEs
over 10 years
(1800% shareholder value 1995–
2006)
Sample: 8.0x
higher ROI than market average
(S&P 500) over 10 years; and 3.1x
higher than GGCs
Sample: 3.0x
higher ROI than market
average
(S&P 500) over
15 years
GOOD TO GREAT COMPANIES
(GGCs) 2002
Nucor; Kimberly-Clark
Kroger; Walgreens
Wells Fargo; Gillette
INTEGRALLY
ACTING BUSINESSES
DM, REI, The Container Store
Entelios AG, Riversimple
Stoneyfield Farms, Whole Foods
Trader Joe’s; Patagonia
FIRMS OF ENDEARMENT
(FoEs) 2007*
Patagonia Amazon
Southwest Airlines
IKEA; BMW; eBay,
AVEDA

TREND #3: THE EMERGENCE OF SECOND TIER HUMAN
CONSCIOUSNESS

RATIONAL
INTELLIGENCE
THE
TRUE
- SCIENCE -
ENLIGHTENMENT ERA
DEMOCRACY
NATION STATES
MODERN MEDICINE
SPACE SHUTTLE
CIVIL RIGHTS & GREEN
MOVEMENT
FEMINISM
SOCIAL BUSINESS
CULTURAL CREATIVES:
25-30%
EMOTIONAL
ART, VALUES, MORALS,
ETHICS
THE
BEAUTIFUL
- ART -
INTEGRALLY ACTING HUMANS
INTEGRATING HUMANITY’S VALUE SPHERES
“DeMedici Effect” in the 21st century
THE
BEAUTIFUL
- ART -
THE
GOOD
- MORALS -
THE
TRUE
- SCIENCE -
EVOLUTION OF HUMAN CONSCIOUSNESS TO LATER STAGES OF
DEVELOPMENT

OUTCOMES TODAY
and society
investments

THE FINANCIAL CONTEXT
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?

THE SOCIAL CONTEXT
Real estate bubble bursts, foreclosures, evictions (USA, Spain, Ireland, etc.)
Prolonged unemployment in most Western countries
– 7.6% USA, 12% in Europe on average
Increased inequality in the West
– USA with the “most millionaire households” in the world followed by Japan, China, UK, and
Germany
Growing health problems physically, mentally, emotionally
– Cancer, overweight, obesity, depression, asthma
Social unrests:
– Occupy movement, Spanish Indignados, Greek protest, Arab spring, Ucraine protests
 The worst social consequences since the Great Depression

THE ENVIRONMENTAL CONTEXT
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
– Irrecoverable loss of bio diversity

What is going on?

The quiet killer and the driving
force behind destruction
but also the GOOD is
Exponential Growth

Most decision makers
do not get it
until it is much
to late to respond

What is Exponential Growth?

The sage and the Indian king

THE SAGE AND THE INDIAN KING
8 > 1+2+4=7
32 > 1+2+4+8+16=31
On each new field, there are more grains
of rice than in all previous fields together
Exponential growth means that each
duplication contains a larger quantity of
things than all previous quantities taken
together
The last square would contain
9.223.372.036.854.780.000 grains of rice
that would cover the surface of today’s
India with more than 1 meter of rice

EXPONENTIAL POPULATION GROWTH
220.000 PEOPLE ARE BORN PER DAY (NET)

EXPONENTIAL ECONOMIC GROWTH
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 event
Its GDP has doubled 6 times since 1978
By 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 quantity
The 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

“Humanity is stupid enough not to
do what is perfectly doable”
to prevent disaster, Prof. Randers

Is that really true?

Maybe!

But, something good is also going on!

EVOLUTION OF CONSCIOUSNESS
RESEARCH ON PRIVATE EQUITY INVESTORS
138 investors: 50% men – 50% women
Global investors from USA, Canada, Germany, China, India, France,
Thailand, Bali, Singapore, Turkey, Dubai, Ireland, Switzerland
High-tech, clean-tech, music, beverage, health care, Wall street
financiers, lawyers, music industry
Active philanthropists and social entrepreneurs
Stanford, MIT, Harvard, Sorbonne, etc. graduates
– 45 doctorate degrees, 60 MBAs, other Master’s degrees
Aggregated investment capital: $1.39B

THE HERO’S JOURNEY: AWAKENING
34Copyright 2010 |
Physical degradation, back pain, overweight, regular colds, heart
problems, food allergies, injuries, multiple sclerosis

THE HERO’S JOURNEY: EMOTIONAL PAIN
35Copyright 2010 |
“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”

THE HERO’S JOURNEY: THE TIPPING POINT
36Copyright 2010 |
TERRIBLE EMOTIONAL PAIN LEAD TO THE COURAGE TO
FACE OWN SHADOW USING TEACHERS
– “Got fed up with fear”
– Decision to experience the “dark night of the soul”
– Asking essential life questions: “Who am I? Why am I here?”

NOTICED LACK OF MEANING AND FULFILLMENT
“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”

UNITY CONSCIOUSNESS EXPERIENCES
“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
38

THE HERO’S JOURNEY: RETURN TO SOCIETY
“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.”
39Copyright 2010 |

INVESTORS’ VALUES SHIFT

How can we leverage this
development in early stage
investing?

OUTCOMES TODAY
and society
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.
Integral Metrics
Environmental DD
Social, Stakeholder
& Governance DD
Traditional $$$ DD
Individual
Consciousness
(incl. morals &
values)
Due Diligence
Individual &
Collective Gap
Analysis &
Report
ExteriorInterior
Organizational,
Cultural & Ethical
Due Diligence
(DD)
INTEGRAL INVESTING
AQAL Investing Screening Process
Profit
TRADITIONAL
INVESTING
Profit Metrics
IMPACT
INVESTING
Profit
People
Planet
Sustainability Metrics
ESG, IRIS, SAM
Triple Bottom Line
e.g.
GRAMEEN BANK
LGT VENTURE
PHILANTHROPY
e.g.
TRADITIONAL
WALL STREET
BANKS
AND
VENTURE CAPITAL
FIRMS

KEN WILBER’S INTEGRAL MODEL
Ken Wilber’s Integral
Model is endorsed
by Bill & Hilary
Clinton and Applied
in 50+ disciplines
and organizations
including McKinsey
and Company
Four quadrant
correlates
for humans,
along lines of
increasing
complexity
Self & Consciousness
[Subjective Experience]
I
INTERIOR INDIVIDUAL
INTERIOR COLLECTIVE
Culture & Worldview
[INTER-Subjective]
Archaic
Animistic-Magical
Early Mythic
Late Mythic
Scientific-Rational
Pluralistic
Holistic
Integral
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
8
Social System & Environment
[INTER-Objective]
Brain & Organism
[Objective Behaviors]
IT
EXTERIOR INDIVIDUAL
EXTERIOR COLLECTIVE
WE ITS
1
2
3
4
5
6
7
8
1
2
3
4
5
6
7
Instinctual Self
Magical Self
Egocentric Self
Mythic Self
Achiever Self
Sensitive Self
Holistic Self
Survival Clans
Ethnic Tribes
Feudal Empires
Early Nations
Corporate States
Value Communities
Holistic Communities
Integral
Meshworks
8Integral Self
Neocortex (Triune Brain)
Complex Neocortex
SF1
SF2
SF3

SUMMARY
Demystifying the landscape of rather confused investors, businesses, and society
Investors’ convergence
Convergence of business models
Emergence of second tier human consciousness
Exponential 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!

WE WILL CATCH THE BOAT

Finding ethical alpha using aqal investing

Recomendados

Recomendados

Más contenido relacionado

Destacado

Destacado (9)

Similar a Finding ethical alpha using aqal investing

Similar a Finding ethical alpha using aqal investing (20)

Último

Último (20)

Finding ethical alpha using aqal investing

Notas del editor