Return on Investment

    Hedge funds intro: Overview of how hedge funds are different than mutual funds

What can the social sector learn from hedge funds?  Hedge funds are unregulated by the SEC, cannot market (can you name a hedge fund), are limited to doing business with accredited institutions, and take on average 2% as a management fee plus 20% of all profits.  Why do sophisticated investors happily turnover their capital to a hedge fund manager?

The social sector’s competition is often the hedge fund.  When a prospective donor considers the worthiness of a cause they weigh it against the return on investment offered by the charity versus an infusion of capital into the market.  A social sector organization has a distinct advantages versus a hedge fund.  They can market the cause, are regulated, open to engaging with anyone who is interested in the cause, and authorized to restrict dollars donated into specific channels without a management fee.  In a snapshot analysis, a worthy social sector organization should be very attractive.  Even more compelling a charity can benefit a greater group of people than just the investor and the hedge fund manager.  As Seth Godin and Simon Sinek reminds us, a corporation (for profit or nonprofit) cannot love us but the people who work within the enterprise can.  The shared belief that unifies a cause for the greater good is potent.  The sense of hope that a problem can be solved with specific and measurable activities is transformational.

So why do prospective donors turn to the markets instead of making an investment in a social cause?  A hedge fund has a record of success.  Professionals and a network of peers are recommending the hedge fund as a reliable way to grow an investment.  The act of growing ones money so they will have even more to do good on a larger scale at a later date is more compelling than the narrative of contributing to the social sector today.  The hedge fund has a strategy in place and hires people who are committed to the model.  The psychology around the likelihood of a positive return on investment is higher with the hedge fund than the social cause.

So, the challenge to the social sector is not to think and act more like a hedge fund but rather to amplify the human element.  The Gates-Buffet Giving Pledge has challenged wealthy peers to commit to contributing half their fortune to charity allowing for a powerful confluence of opportunity.  The chance to re-frame the discussion.  It is no longer about financial return on investment (which is tangible and cannot be discounted) but more vitally the emotional return on investment.  The opportunity to find the intersection of belief.  To engage an individual and a tribe of people committed to taking a heroic journey that will forever change their community.  Hedge funds are limited in that they can only take capital and return more capital in exchange for an individual’s time and custodianship of an investment.  Social sector causes provide a vehicle to measurably alter the way one spends their time and the results of this journey can forever change the landscape.

I frequently return to the short story by Jean Giono, The Man Who Planted Trees.  An unlearned peasant transforms a war torn region by planting trees for half a century.  His efforts revitalize a region that were once considered a wasteland and unworthy of being inhabited into a thriving community.

When I reflect that one man, armed only with his own physical and moral resources, was able to cause this land of Canaan to spring from the wasteland, I am convinced that in spite of everything, humanity is admirable.  But when I compute the unfailing greatness of spirit and the tenacity of benevolence that is must have taken to achieve this result, I am taken with an immense respect for that old unlearned peasant who was able to complete work worthy of God.

I would suggest no hedge fund has ever made an equal return of investment.  Our time and talent is valued far more deeply than money will ever be.  A donation is the fuel for our adventure, the return on investment is the connection of ideas and people.

Thinking Differently

 I sat next to a woman on my flight this weekend who was returning from an intensive corporate training session for an well-known chain.  When I asked her if she could define the central belief of the company she responded, ‘profit is in the little details.’  That is an actionable sentiment but I was perplexed as to how it could reflect the organization’s core belief.  It might be a ‘how’ in Simon Sinek’s Golden Circle but not the ‘why.’ It was a safe response but not different or inspiring.  After three weeks this was at the top of her mind.  It reminds me of Hugh Macleod’s cartoon about climbing a ladder to nowhere.  The tag line feels like progress but it is unsupported.  As Simon says, ‘people do not buy what you do they buy why you do it.’

Looking to think differently and surround yourself with those who choose an unconventional approach?  Chris Guillebeau’s World Domination Summit is about to open the next round of registration.  This is the most compelling and inspiring conference I attend each year.  It fascinates, expands my way of thinking, and provides a safe platform from which to discuss innovative ideas.  If you are looking to lean your ladder against something, make sure it is worth climbing.

To Win or Not?

The finish of one race is the start of the next

Your competitor in a running race establishes a definitive gap and heads to certain victory.  They stop 10 meters before the finish line believing they have won the race.  You close on them quickly seeing their mistake.  You can pass them and profit from their error as they stand in false celebration.  What do you do?

Here is how one competitor acted.  Action defined by belief.

Everyone’s Story

I read a LinkedIn post calling for simplified versions of Strategic Planning.  One contributor referenced their book, The Six Hour Strategic Plan, which offers fascinating approaches.  The barrier to simplifying any process is that one must draw a boundary and eliminate the infinite possibilities.  If we took note of every individual’s story in the above painting that hangs in the Louvre, the task would be laborious   But if you know that you are seeking those in a starring role who sit on the stage, the story-gathering is more focused.

Remarkably there can be clarity.  The real challenge is knowing what you believe and how you can deepen your connection.  Then you can work on the pathway to reach them.  The ridiculous part in this methodology is being willing to ignore everyone else, no how compelling their narratives.