Noha Kikhia, associate principal of the Redstone Strategy Group, talks about economic mobility within philanthropy, finding viable opportunities in the space and how family philanthropists can evaluate their own impact.
What is the field of economic mobility in the context of philanthropy, and what are the main priorities of organizations working in the space?
The field of economic mobility focuses on building financial security and opportunity to enable people of all backgrounds to thrive. Research suggests only half of children grow up to earn more than their parents, a measure that has been in decline for the past 50 years. Philanthropists and community-based organizations have deployed diverse strategies to increase economic mobility for more Americans by building opportunity and addressing the major challenges that keep people in poverty. Some common approaches include:
- Building more robust career pathways through improvements in workforce development training, apprenticeships and work-based learning. These solutions help ensure equitable access to skills development so individuals can find jobs that are growing in our current and future economy.
- Improving job quality through investments in employer training, equity-focused procurement practices and changes in investment approaches to incentivize improved employer practices. These solutions help ensure that available jobs are high-quality and provide a living wage. This is crucial to building upward mobility for all workers.
- Supporting individuals and families to achieve financial security through improved access to safety-net benefits and wealth-building opportunities. These solutions help individuals achieve stability, which is a foundation to upward mobility.
What have been some of the greatest challenges in creating pathways to economic mobility and opportunity?
Several challenges have created barriers to economic mobility and opportunities for diverse populations. First, the rise in income inequality and wage stagnation has made it more challenging for people to earn a sufficient income to meet basic needs. Second, we need to transform U.S. education and workforce systems to ensure they are adequately preparing individuals for jobs that will facilitate equitable advancement for all. Finally, systemic racism within the workforce field’s practices, policies and programs often create disparities in workforce outcomes that lead to barriers in economic mobility.
The team at Opportunity Insights has conducted research for many years to identify barriers to economic opportunity and develop solutions. You can read more in their research about how investments in education, neighborhoods and focal populations can address these challenges.
What are some of the most promising interventions or solutions that family and individual philanthropists are well-positioned to support?
Family and individual philanthropists are well-positioned to invest in solutions that bring together business, policy and philanthropy to address these barriers. Promising approaches include investing in place-based solutions that build community and build upon the expertise of those most impacted. Donors can also invest in innovative pilot programs that are seeking traction before they grow, which often requires funding from philanthropy.
Gary Community Investments is an example of a family office that is deploying a place-based approach to support financial security and mobility for kids and families from low-income backgrounds and BIPOC [Black, Indigenous and people of color] communities in the metro Denver area. Their investments in higher education pathways, job training programs and solutions to facilitate access to public benefits have supported hundreds of families. Their place-based approach allows for authentic relationship-building with on-the-ground stakeholders.
Can you share one or two examples of recent successes in the field?
During the COVID-19 pandemic, we saw a significant number of families and individuals investing in economic mobility efforts, and a number of nonprofits stepped up their work in this area. The Families and Workers Fund helped provide emergency cash relief to 215,000 front-line workers in 2020 and has expanded its funder collaborative to invest in improved job pathways and 21st century benefits.
Opportunity @ Work (O@W) is another organization that is supporting individuals to access high-quality jobs. It’s working specifically with people who have gained their skills and expertise in ways other than via a college education. This population is known in the field as STARs: people who are skilled through alternate routes. It’s a large group — 50% of all workers in the United States are STARs, including 62% of Black workers and 54% of Hispanic workers. O@W has created technology tools to connect employers to STARs to build stronger skills-based pathways in industries such as technology, consulting and more.
What are the considerations that donors and their advisers should keep in mind when designing a grantmaking portfolio in this field and measuring impact?
Investments in economic mobility are a smart decision. The primary considerations donors and advisers should keep in mind is what specific population they are hoping to serve and what the barriers are that those populations experience. Do they need support upskilling or reskilling in response to the changes in the local labor market? Do they need support exploring and implementing employee ownership models as an approach to wealth-building? Specific focal populations like youth or previously incarcerated individuals face unique challenges with a set of solutions and bright spots to leverage.
Investments in economic mobility can bring the American dream back to life. Donors have the opportunity to participate in a once-in-a-generation opportunity to improve the economic mobility and prosperity of all Americans. Join the movement.
The opportunity in private markets: Direct secondary share ownership
By TOMMY MAYES
Have you ever been exposed to an investment opportunity that at the time seemed wildly impractical, but then years later technology and innovation elevates the opportunity in a more accessible format?
Private markets investing — or, better said, investing in anything that is not available in public markets on an exchange — has been a source of investment alpha and wealth creation since the beginning of time. But historically within private markets, the ability to own actual shares of a nonpublicly traded private company has been limited to limited partners or insiders.
The opportunity
Today, accessing private shares of companies like Anduril Industries, Stripe Inc., Epic Games and Addepar is both practical and perhaps necessary for investors to consider as a component of their portfolio. The expansion of this opportunity has been driven by the well-publicized fact that high-quality companies are staying private for longer — which is forcing those companies to allow its shareholders to find ways to access liquidity, sell shares to exercise options and, importantly, diversify holdings.
According to CB Insights, there are over 1,200 private companies worldwide with valuations exceeding $1 billion and almost 50 companies with valuations over $10 billion. These companies often have multiple institutional venture investors, proven business models and, quite often, significant profitability.
While acknowledging the risks of private share ownership — such as illiquidity, lack of financial transparency, valuation uncertainty and diligence challenges — there are many attributes that make investments in private companies compelling.
Private markets can offer higher returns compared with public markets due to the illiquidity premium and the ability to invest in promising early-stage or pre-IPO companies or undervalued assets, often at a discount to recent valuations. A quality factor overlay can be applied with direct secondaries, versus blind pool investing in venture funds.
If your investment thesis is tech-focused, it is important to recognize where the real value creation occurs in many companies. According to a University of Florida study, the majority of value is realized pre-IPO. And to the extent that companies stay private for longer, mature tech companies are creating tremendous value while staying private.
The same study references the median age at IPO now is 15 years.
The hurdles
From my research, two of the primary hurdles in this approach are due diligence and diversification. This is where innovation has provided investors new options.
From a diversification perspective, several companies have created pooled vehicles, such as traditional LP funds and closed-end interval funds. Firms like Ark investment Management, Destiny and other fund sponsors are touting their expertise in access and due diligence. Additionally, trading platforms such as EquityZen, CartaX and Forge Global provide access to qualified investors, representing their expertise in diligence and access.
Recently, Forge Global partnered with a firm specializing in the space — Accuidity — to launch the Forge Accuidity Private Market Index, which tracks 60 of the top venture-backed private companies. Accuidity offers the Megacorn fund, an institutionally managed index fund seeking to replicate the performance of the Forge Accuidity Private Market Index, providing diversified access to direct share ownership.
I asked Accuidity co-founder and President Vince Gubitosi about the opportunities and challenges that they have encountered in building out his firm.
“Our team has decades of indexing experience, and the process of creating a true private markets index has been both challenging and rewarding,” Gubitosi said. “Cutting through the noise of the private markets space, creating a paperless investor experience and partnering with firms like Forge are allowing us to serve an important role in matching capital with opportunity.”
Not all are equal ...
I have also learned a great deal about the different ways in which firms and sponsors represent their interests in companies like SpaceX and Databricks. This can range from “on the cap table” units to synthetic exposures.
Recently, a colleague with another family office admitted that they thought they were in a late round of a prominent company, only to find out from the company’s CFO that their sponsor was not on the cap table at all. They were in a special purpose vehicle (SPV) that owned units in another SPV. Now the investment may work out, but the cost to access is astronomical.
The investor should know whether the shares/units are primary or secondary, common or preferred; and to the point above, whether the shares are on the cap table or held through an SPV.
An SPV is fine, of course, assuming the underlying exposure is real, the fee structure is reasonable and the sponsor/GP has real money on the table. To support the importance of understanding the structure, Gubitosi said: “We prioritize direct cap table exposure on our investments and do not employ any synthetic exposure. If we choose to utilize an SPV, we will rely on our own diligence and partnerships with firms like Forge.”
... and not for everyone
Direct ownership in secondary shares is generally limited to what the Securities and Exchange Commission defines as qualified purchasers or perhaps the lower bar of accredited investors. However, it seems inevitable that the broader — dare I say, retail market — will get in on the game. Of course, there are regulatory changes necessary to allow this to happen.
Consider this: If there are less than 4,000 publicly traded companies available to U.S. investors, and there are over 1,200 venture-backed private companies with valuations exceeding $1 billion, is it not compelling to find a way to add those companies to the investment universe? It certainly broadens the pool of options and improves access to the capital markets for all