case study: Credit Suisse: Building an Impact Investing Business in Asia

please read the case I attached below and answer these questions:1. What is “impact investing”? What distinguishes it from societal value creation through the usual market approaches supported by traditional investing?2. Why was setting up an Asian impact investing fund an interesting opportunity for Credit Suisse? How would you describe the investment strategy for the new fund?3. What challenges did Joost Bilkes face in launching an Asian impact investing fund within Credit Suisse? How has he tried to overcome these challenges?4. See through a financial lens, what are the strengths and weaknesses of the two investments being evaluated? Which one looks more promising? Why?5. Seen through a social impact lens, what are the strengths and weaknesses of the two investments? Which one looks more promising? Why?6. Taking into account all aspects you consider relevant, would you recommend Credit Suisse pursue neither, one, or both of the investments? If constrained to pursue exactly one, which one would you recommend? Why?7. What suggestions do you have for Joost Bilkes and his team to ensure their impact investing portfolio achieves significant social impact?

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For the exclusive use of H. Zhang, 2018.
Credit Suisse:
Building an Impact Investing
Business in Asia
This case was written by Jasjit Singh, Associate Professor of Strategy at INSEAD and Academic Director of the INSEAD
Social Impact Initiative, and Joost Bilkes, Head of Responsible and Impact Investing for Asia Pacific at Credit Suisse. It
is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of
an administrative situation. This case includes some copyrighted materials kindly shared by Credit Suisse for use in
the case exhibits, and the authors gratefully acknowledge Credit Suisse’s permission to use these.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at
Copyright © 2017 INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
Joost Bilkes was the Head of Responsible and Impact Investing for Asia Pacific at Credit
Suisse (CS). His role involved designing solutions to expand CS’s impact investing business.
Among other things, Joost managed CS’s role as an “impact adviser” for the new Regional
Impact Investing Fund (RIIF) he had helped CS set up in Asia in 2014. 1
Looking back in the spring of 2017, Joost had reason to be proud of what had been achieved
in the last three years. But many challenges lay ahead in building a robust portfolio, and in
achieving a “double bottom line” combining ambitious financial targets with a substantial
social impact. For now, as he evaluated two new investment opportunities needing a decision
on whether to proceed to detailed due diligence, he wondered how to proceed on these.
Impact Investing at Credit Suisse
By 2017, the impact investing space, while still relatively small, was becoming increasingly
important for investors keen to support sustainable market-based solutions for critical societal
needs (Exhibit 1). As one of the most reputable global banks, CS sought to be a leader in this
arena, especially given its growing prominence among its ultra-high net worth clients. CS’s
impact investment funds sought positive social and/or environmental benefits in a way that
would not require a compromise on financial returns. Its focus was therefore on opportunities
where financial performance and impact were mutually reinforcing, rather than impact being
either just the by-product of an investment or the result of a cross-subsidy model (Exhibit 2).
Impact investing at CS originated with its pioneering role in the microfinance sector since its
early days (Exhibit 3). In 2002, it had co-founded responsAbility Social Investments AG, an
asset manager specializing in development-related funding in emerging economies. In 2008, it
had launched the Microfinance Capacity Building Initiative to further build capacity in the
financial sector – collaborating with other major players like Accion, FINCA, Opportunity
International, Swisscontact, and Women’s World Banking. Over time, impact investing at CS
grew beyond microfinance, in ways such as the creation of the first Higher Education Note
(2014) and the first climate-neutral real estate fund in Europe (2015). The bank had won
many awards for its impact-related work, such as the FT/IFC Sustainable Bank Award (2012)
and the Environmental Finance Deal of the Year Award (2014). As of 2017, CS’s impact
investments involved over USD 3.3b in assets, with close to 5,000 clients invested.
Launching the Regional Impact Investing Fund (RIIF) in Asia
After brief post-MBA stints at UBS Investment Bank and Westpac in Australia, Joost had
joined CS in 2006. After several years in the global fund analysis division, including being
promoted to head the bank’s fund platform for Asia-Pacific, Joost felt the urge to make a
bigger difference in the world by extending CS’s impact investing activities globally.
In Southeast Asia and China, unlike in India, Africa, and Latin America, not many impact
funds financed expansion capital opportunities in the USD 2m-10m range through a
commercial approach to impact investing. Joost saw this as an opportunity. By 2014, he had
won support from CS leadership to set up an Impact Advisory Team (IAT) in Asia – under
The fund name and some related information have been disguised for confidentiality.
Copyright © INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
Bernard Fung’s broader Wealth Planning Services division – composed of talented internal
staff and impact investment experts from outside. In addition, the team in Asia could learn
and draw from the global impact investing resources CS already had.
Joost attributed the relative scarcity of Asia-focused impact funds financing growth of small
and medium size enterprises (SMEs) not as much to the paucity of investment opportunities
as to the regional funds being small in size and focused on smaller transactions of less than
US$2 million. Many of these funds invested in social enterprises whose business models were
not commercially proven yet. This not only made it hard to cover such fund’s fixed costs but
also involved lower financial returns, greater financial risk, and the need for more intensive
management support. Such “concessionary” funds therefore involved a financial compromise
for achieving impact, an approach that seemed impractical for CS’s existing client base.
Joost recognized that any CS impact fund in Asia would need to be compelling from a
traditional portfolio theory point of view, meeting its high expectations for attractive riskadjusted financial returns. So the focus would have to be on “win-win” deals involving
businesses that could create “shared value”. Joost believed that the scalability of impact
would be higher if the impact was achieved as a natural part of the commercial portfolio
rather than as an add-on disconnected from the discipline of running a profitable business.
After extensive research, CS formed an alliance with a regional growth-stage investment
manager called the Asia Private Equity Group (APEG). Together they set up RIIF, with
APEG serving as the investment manager and CS as the “impact adviser”. APEG was
affiliated with a major Asian banking group, giving RIIF access to the pool of over 500
transactions a year that originated in APEG’s branch network – an efficient starting point for
sourcing financially attractive deals with a high impact potential (Exhibit 4). Joost also
strengthened the Asia-specific impact investing capabilities within CS, including bringing in
Noah Beckwith, a renowned expert with 20 years of experience in developmental finance.
RIIF’s geographic focus was on China and selected ASEAN countries: Indonesia, the
Philippines, Thailand, Vietnam, Cambodia, and Laos (Exhibit 5). China and Indonesia were
expected to account for up to 60% of the investments. These deals would involve SMEs, with
a likely size of USD 2m-8m (possibly split over tranches). Given the smaller amounts relative
to traditional investments, making the economics work required a lean and efficient operation.
RIIF’s investment strategy was to focus on companies whose social impact was intrinsic to
their profitability and growth: SMEs that could improve the lives of people living at less than
USD 3,000 a year. Their business models had to involve a core engine involving individuals
from the so-called “base of the pyramid” (BoP) as consumers, producers, distributors, and/or
employees. The priority sectors were agriculture, healthcare, education, clean and renewable
energy, sanitation, water, access to finance, and affordable housing.
Joost had sought RIIF to be around USD 50m in size: anything smaller would be unviable,
and anything larger would involve more investees than could be reasonably managed. In line
with its target, RIIF managed to attract USD 55m by 2016. The largest source (71%) was
CS’s ultra-high net worth clients (50% Asian, and 21% Europeans with Asian assets). The
remaining sources were CS staff (12%), APEG’s corporate parent (7%), and institutional
investors like pension funds (10%). Many of CS’s clients were rich entrepreneurs interested in
Copyright © INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
investing in SMEs. CS saw particular interest from foreign-educated millennials from leading
business families, eager to employ impact investing as a strategy for making a difference.
A fund size of USD 55m was small relative to the mainstream investing funds that financial
institutions like CS operated. Therefore, to ensure that he still had buy-in and support within
CS, Joost pitched the fund internally not as much as a major commercial undertaking in the
short term as a launching pad for two bigger opportunities. First, the experience would help
CS build expertise and reputation for becoming a leading impact advisor for high net worth
clients in Asia, possibly helping them manage private impact investing portfolios. Second, the
learnings from RIIF would be as a competitive advantage for CS in launching bigger funds in
future as impact investing became more mainstream and the overall ecosystem matured.
RIIF was formally set up as a seven-year private equity fund, with a target internal rate of
return (IRR) of 20% per annum on a gross basis. In addition to an annual management fee of
2% of assets under management, the fund would retain a bonus calculated as 20% of the
extent by which its realized returns exceeded a hurdle of 8% per annum. By mid-2017, seven
investments had been approved, and two or three more deals were expected by the year’s end.
The RIIF Investment Process
1. Transaction Sourcing and Screening
APEG had a rich pipeline of commercially attractive deals, thanks to its vast network in Asia.
This helped source opportunities that also fit with RIIF’s impact goals. In complementing
APEG’s screening on potential impact, the IAT sought advice from an “Impact Advisory
Council” (IAC) consisting of an independent panel of experts – with skills relevant for impactrelated issues in general and BoP-specific aspects of any transactions in particular. Building
impactful business models that would also scale and deliver market returns was hard.
Nevertheless, the IAT’s strategy was clear: any opportunity that did not hold significant builtin impact was not to be considered irrespective of its financial attractiveness.
Promising APEG leads that passed the IAT’s initial impact screening were documented in an
“Exploratory Memorandum”. This included an assessment of the business and the financial
opportunity as well as its fit with RIIF’s impact strategy and requirements (Exhibit 6). Every
such memorandum included an attachment called a “Transaction Eligibility Matrix” (TEM),
which recorded responses to a list of impact-related questions (Exhibits 7a and 7b). As SME
strategies could easily change if the founders succumbed to commercial pressures or pivoted
to pursue new ways of monetizing their ideas, special attention was paid to understanding the
motivation and commitment of an investee’s management regarding their BoP engagement.
2. Due Diligence
If satisfied with the initial review, the IAT would work with APEG for a comprehensive due
diligence. The APEG team focused on traditional venture capital factors, such as countryspecific political and macroeconomic context, sector-specific considerations like market
potential and competitive landscape, and company-specific factors like management team and
competitive advantage. The IAT supported them in this process by helping them evaluate
Copyright © INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
different risks (management risk, execution risk, market risk, financial risk, and regulatory
risk) as well as adherence to relevant environmental, social, and governance (ESG) standards.
However, as RIIF’s impact adviser, the IAT’s most critical role was evaluating how well an
investee could deliver on RIIF’s impact-related goals. This involved multiple dimensions:
Impact alignment: To ensure that financial returns and impact grew hand in hand, the
IAT looked closely at the proposed commercial route to impact, ensured clear
processes to manage and measure impact, and evaluated whether the model might also
bring wider transformational benefits through innovation and/or replicability.
Growth with BoP engagement: The considerations here included how robust the BoP
engagement was, how well the business model could be scaled up and/or replicated
with a continued BoP focus, and whether the BoP engagement could avoid crosssubsidisation and other trade-offs for impact that might cause tensions in the model.
Improved efficiency and innovation: Here the IAT evaluated how RIIF could help
improve efficiency or innovation related to BoP engagement (e.g., by redesigning the
value chain, improving access to markets, utilizing resources effectively, building BoP
consumer demand, introducing innovations around access, price, or financing, etc.).
Monitoring and evaluation: Here the IAT examined existing or potential mechanisms
for monitoring and evaluation of an investee’s social performance and the investee’s
openness to adjusting its strategy in response to IAT feedback from this.
3. Investment Committee Approval and Deal Completion
The findings and investment recommendation from the due diligence stage were documented
in the form of a comprehensive “Investment Memorandum”. This memorandum was then
circulated among members of the “Investment Committee”, comprised of leading experts
whose approval was necessary before any deal for RIIF could be finalized. In additional to
business analysis, the circulated information also included the findings a deal’s impact
potential. This included likely economic indicators (e.g., job creation, increase in incomes,
increase in employability, etc.), inclusion-related indicators (e.g., access to essential products
and services, gender equality, social inclusion, etc.), and environmental indicators (e.g.,
reduction in environmental damage, efficient use or conservation of natural resources, etc.).
If and when a deal was approved by the Investment Committee, the process proceeded to a
formal agreement being signed with an investee. An important aspect of the negotiation at this
stage was agreeing on a valuation for the company. Unlike in mature companies, detailed and
reliable cash flow projections that could allow comprehensive financial valuation frameworks
(such as a “discounted cash flow” approach) were rarely available for SMEs that fit the RIIF
profile. Therefore, the valuation often involved analysis based simply on relevant
comparables and sector benchmarks. The deal could be structured in various ways depending
on the specific situation, including as equity, debt, and hybrid structures like convertible debt.
4. Value Addition and Portfolio Management
RIIF supported its investee on various dimensions, such as financial management, marketing
strategy, product development, supply chain management, organization building, and IT
systems. There was continual monitoring of metrics around fiscal management, HR
Copyright © INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
management, corporate governance and ESG performance. The fund provided full
transparency to its investors through investor meetings and field visits for interested parties.
Evaluation of impact included a wide range of factors, such as product access, job creation,
connection to markets, quality of employment, upward mobility, security, empowerment, and
gender equality. Where relevant, RIIF drew on recognized standards – such as the Impact
Reporting and Investment Standards (IRIS) and the Global Impact Investing Rating System
(GIIRS). In focusing on a few key metrics, the CS team was also mindful that SMEs should
not be overburdened by measurement. A portfolio-level impact assessment was carried out on
a semi-annual basis, to be complemented by an in-depth annual report providing quantitative
and qualitative analysis of the impact. The first such report was to be published by end-2017.
5. Exit
Evaluation of exit opportunities at RIIF would involve not only financial considerations but
also a quest for continuity in terms of preserving and expanding a company’s focus on impact.
Exit strategies were likely to vary with context – such as an IPO, a sale to a strategic buyer, or
a sale to a mainstream investor. But it was too early to tell how RIIF’s exits would work out.
Evaluating Two New Investment Opportunities
In the pipeline of deals coming through, two companies particularly caught the attention of
Joost and the other IAT members as potential opportunities for RIIF. 2 Both seemed to offer a
promising combination of financial and social returns, so the IAT started preparing an
Exploratory Memorandum and accompanying TEM for each. As this task was underway,
Joost wondered which, if either, of these might be worth prioritizing for a full due diligence.
1. China Nutrition
China Nutrition (CN) produced nutritional supplements for infants and children in povertystricken parts of China. Its main customers were provincial and city governments, which
purchased the nutritional packs for distribution to the poor as part of a nationwide programme.
The programme focused exclusively on counties officially designated as low-income by the
government, with average annual per capita incomes of about RMB 5,300 (USD 800). The
ultimate beneficiaries were infants, who had the semi-solid food in the nutrition packs fed to
them by caregivers, typically parents or grandparents.
CN had been founded in 2011 by two partners with a decade of experience in running infant
poverty assessments and product tests. They brought not just technical expertise but also a
demonstrated and credible passion for reducing malnutrition across the country.
Social Need and Market Opportunity
UNICEF had recently ranked China fourth in the world in terms of percentage of stunted
children (after India, Nigeria, and Pakistan). The prevalence of stunted growth among
children in China was 9.4%, almost four times that of the US or Singapore. Studies had shown
The names of the two companies, and some related dates and figures, have been changed for anonymity.
Copyright © INSEAD
This document is authorized for use only by Hongbin Zhang in FNAN 498-Spring 2018 taught by David R. Gallay, George Mason University from January 2018 to May 2018.
For the exclusive use of H. Zhang, 2018.
that inadequate nutrition during the early years of life was a common reason for such issues.
For example, iron deficiency could lead to lifelong consequences for brain development.
About half of the children in rural China suffered from anaemia due to malnutrition or
undernourishment. According to the Chinese Centre for Disease Control and Prevention
(CDC), t …
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