Off-the-Grid Investing: Perspectives and Voices of a Transforming Financial System


By Don Shaffer, RSF Social Finance
 
Don Shaffer, RSF Social FinanceRSF Off-the-Grid

When you are looking for the new or emergent, you usually have to look off-the-grid. In many ways as RSF Social Finance has grown, we too have had to go off-the-grid to develop our unique approach to finance.

In 1984, a school burned down in New Hampshire. RSF organized a group of investors to rebuild it. Since then, we have made over $275 million in direct loans to social enterprises. Our track record has been excellent, with just 2 percent in cumulative loan losses over 29 years, and a 100 percent repayment rate to investors.

The key: bringing investors and borrowers closer together. We have found that if the individual investors who are providing capital and the social entrepreneurs who are borrowing capital can be more visible to each other – if they can understand each others’ needs and intentions, and sustain a personal connection whenever possible – then risk decreases and fulfillment increases.

Participants in a transaction become participants in a relationship. We believe this is nothing less than the antidote to modern finance, and can be applied on a substantial scale. It is the opposite of high frequency trading.

Specifically, four years ago RSF adopted a new approach to loan pricing for our $100 million flagship senior-debt fund. Each quarter, we convene representatives from our staff, our investors, and our borrowers to decide what annualized return rate investors will receive the following quarter, and what interest rate borrowers will pay – a radical form of transparency.

We call it community-based pricing. The response from participants has been overwhelmingly positive – and our interest rate, referred to as RSF Prime, has been very stable. We are now off-the-grid of the global financial interest rate system and no longer directly affected by the vagaries of Wall Street.

But of course the vast majority of all 401(k) programs, pension funds, and endowments are tethered to Wall Street, so it is naïve to believe we are fully off-the-grid.

This circumstance leads to questions many of us in the social finance field think about:

•  What is it going to take for the number of socially and environmentally-focused investors to grow substantially?

•  Can it happen fast enough for those of us who acknowledge the urgency of climate change and natural resource depletion?

•  Are there enough sound investment opportunities for investors who want to go off-the-grid?

•  How will we address the perennial issues of risk, return, and liquidity when there are so few established intermediaries in which to place funds?

•  What are the long-term implications for those of us who anticipate needing funds for retirement and who want to embrace off-the-grid investing?

A Generational Voice

I believe the very definition of wealth will change in my lifetime (I’m 44), where measures like GDP evolve to measures of well-being. These indicators will put spiritual, community, and ecological health at the center of the human experience and pull us toward an economy and supporting financial system that are direct, transparent, and personal, based on long-term relationships.

A growing recognition that we are all interconnected will inform how people make economic choices, how rewards and incentives are structured, and how legal systems evolve.

In fact, we are witnessing this shift already. New sectors of the economy are growing steadily:

•  The sharing economy, in which people acknowledge that they don’t necessarily need to own a car or lawnmower, and they can connect with each other online to find homes to stay in while traveling.

•  The DIY (do-it-yourself) economy, in which websites like Etsy connect hundreds of thousands of artisans and craftspeople with those who want unique homemade products.

•  The local food economy, in which more and more consumers want to connect with the people who grow and process their food.

I could also mention the potential of crowd-funding, though it is still early on. Time will tell, but I believe these are trends, not fads—trends toward aligning one’s money and values, more personal connection through emerging economies, and mutually beneficial economic exchanges. Even though they are evident today primarily in more affluent communities like Brooklyn, Berkeley and Boulder, this is changing too. Many observers agree: networks engaged in small-to-small trade will continue to replace centralized corporate incumbents in many categories.

Yes, there will continue to be demand for airplane engines, pharmaceuticals, and semiconductors – examples of products that require more centralized R&D and manufacturing, and large-scale capital markets. I hope ESG Funds will continue to refine their methodologies and raise the bar for “what’s good”; and I hope experts in shareholder advocacy of publicly traded companies will continue to be effective.

But in my direct association with Gen Xers and Millennials (especially) in the U.S. over the past few years, I am coming into contact with people who want to consume less and save more; expect lower financial returns while having an extraordinarily high bar for “impact” from their investments; plan to hold less personal debt and have more free time to enjoy arts and culture. Many are anxious about the future. Many want to have a closer connection to their investments. Many are completely disillusioned with big banks, financial advisors, and the stock market.

Though most have not described it in these terms exactly, they have an intuitive and visceral sense that the existing paradigms and assumptions about investing and markets no longer work. In my meetings, these individuals essentially echo the key findings of Leslie Christian’s 2011 paper entitled “A New Foundation for Portfolio Management”.

•  They recognize that ecological risk should be a primary consideration in every investment decision.

•   They believe we may have entered an extended “new normal” period where economic growth rates are much lower than in the post-WWII era.

•  They want to form their own personal investment thesis based on their unique vision for the world.

A Practical Story

For example, I know a woman who is quietly engaged in a radical act. She is a cashed-out tech entrepreneur, and has begun a journey to learn how she can best align 100% of her money with her heart, mind, soul, and values. No small undertaking.

It is not important that you know all the details of her story, but here is a brief summary: She is an engineer who came to Silicon Valley by way of Texas and Tennessee in the late 1970’s, started a software company with her husband in the late 1980’s, raised a family and grew the business in the 1990’s (with no outside capital), and sold it in 2000 for a lot of money.

She has begun to explore the idea of integrating her investments and philanthropy around the theme of soil health. She is a gardener and rancher herself, so she has firsthand experience in this area.

Plus, she challenges the assumption that investors should always seek the highest possible financial return. She wants to invest in the appreciation of real value of an underlying asset; not speculate on price appreciation of that asset.

A Reflective Voice

I am reminded of Wendell Berry’s essay, “The Whole Horse,” as I reflect on what this woman is setting out to do because she is taking control of her investing in a way that I haven’t seen many people do yet, flipping many conventions around to suit her personal vision. She is reimagining and transforming the activity we call investing to fit her “agrarian mind”:

“The fundamental difference between industrialism and agrarianism is this: Whereas industrialism is a way of thought based on monetary capital and technology, agrarianism is a way of thought based on land.”

“…An agrarian economy rises up from the fields, woods, and streams – from the complex of soils, slopes, weathers, connections, influences, and exchanges that we mean when we speak, for example, of the local community or the local watershed. The agrarian mind is therefore not national, let alone global, but local. It must know on intimate terms the local plants and animals and local soils; it must know local possibilities and impossibilities, opportunities and hazards. It depends and insists on knowing very particular local histories and biographies.”

“Because a mind so placed meets again and again the necessity for work to be good, the agrarian mind is less interested in abstract quantities than in particular qualities. It feels threatened and sickened when it hears people and creatures and places spoken of as labor, management, capital, and raw material. It is not at all impressed by the industrial legendry of gross national products, or of the numbers sold and dollars earned by gigantic corporations.  It is interested – and forever fascinated – by questions leading toward accomplishment of good work: What is the best location for a particular building or fence? What is the best way to plow this field?  What is the best course for a skid road in this woodland? Should this tree be cut or spared? What are the best breeds and types of livestock for this farm? – questions which cannot be answered in the abstract, and which yearn not toward quantity but toward elegance. Agrarianism can never become abstract because it has to be practiced in order to exist.”

Systemic change is happening from the ground-up in small concentric ripples – one person, one investment at a time. More and more investors like the woman described above feel a calling to practice their deepest values through their money. As a financial professional, I too am called. I am called to support and facilitate, in myself and others, a thoughtful understanding of risk and return, full integration of self and money, and personal empowerment to question convention and insist upon alignment. I know that it’s time to create new frameworks for investment decision-making, new networks of support for the pioneers who are questioning conventional doctrine, and new ways of sharing stories to inspire each other.

It’s time to ask openly and wholeheartedly: what does the agrarian mind mean for the world of finance?

Article By Don Shaffer, President & CEO, RSF Social Finance. For more information about RSF Social Finance go to- www.rsfsocialfinance.org

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10 thoughts on “Off-the-Grid Investing: Perspectives and Voices of a Transforming Financial System

  1. Your article gives me hope for our future, Don. I love being part of building toward this future as an RSF client. Thank you for your vision and leadership!

  2. Don, you are speaking our Heartist values and focus…the art of living intuitively and creatively in harmony with the Elementals, nurturing the whole, spiritually, alchemistically, organically from our hearts…we would like to meet you and the lady whose story you shared. Encouraging you with years of experience directing a Demeter farming community, and hearts wide open for the possibilities, we thank you for sharing your vision and look forward to hearing more.

  3. Don, your essay reminds me of a 19th century British epigram:

    “Some men wrest a living from nature and with their hands; this is called work.

    Some men wrest a living from those who wrest a living from nature and with their hands; this is called trade.

    Some men wrest a living from those who wrest a living from those who wrest a living from nature and with their hands; this is called finance.”

    My suspicion is that the agrarian mindset suggested by you and Wendell Berry would also produce higher investment returns — if/when “returns” don’t just mean “money.” As Einstein observed, “Not everything that counts can be counted, and not everything that can be counted counts.” Too often, we in finance simply count what can be counted — and claim ignorance of what really counts.

    Thank you for RSF’s leadership in this ongoing dialogue.

  4. Don – I am impressed by the voice that comes through from an investment professional and hope that your ideas can translate to others in your field as you move about in the investment/banking space.

    There are three ideas which stand out from your blog – 1) that we do not have to rely on conventional interest rate terms defined by ‘the market’, 2) that there are ways to identify real asset values and not merely taking market prices as all encompassing, and 3) that the fundamental basis for thinking through the lens of the person – the farmer – who works on the land is dramatically different from the banker who looks at numbers on a piece of paper.

    If Wendell Berry were the source reading which our Wall Street bankers and traders and quants consumed, we might have a different financial world all-together; having just finished a joint-degree MBA, we are still behind on teaching our young minds what really matters.

    I offer you a brief summary on Community Capital to push the conversation forward – but also to offer a basis to begin with as definitions and practical ideas, like the ones you’ve offered, are what seem to evade us as we are talking about these new ideas…

    http://talkaboutfoodjb.wordpress.com/2013/09/21/a-primer-on-community-capital/

  5. Don
    Excellent articulation of what so needs to be said and shared. Your lifetime will in itself make a huge contribution towards the chance for sanity and wisdom to prevail for future generations.

    Thank you.

  6. Excellent articulation and story telling Don. You bring to life something from deep in the soul of money, to be enlivened as nutrient for a regenerative gift for future generations. Thanks for continuing to speak out about what matters.

  7. Thanks, Don, for sharing your mindful and articulate thoughts on a financial future that many people are developing, one local agrarian business at a time. Two of my brothers plant and harvest 1,000 pine trees a year on a farm that will sequester the entire carbon footprint for three generations of our family over the next 30 years. They inspire me every day to continue consulting with advisors who want to learn about SRI strategies.

  8. I am heartened and thrilled to read this here. Beautiful description of the emerging reality that many of us are encountering and encouraging — even while we don’t know exactly where we’re going. The adage “the path is made by walking” fits here. Thanks for speaking out!

  9. Don, thank you for your wise words, inspiration, and sharing a vision that people can believe in. It’s so important that we all speak up so that people can realize they are not alone, and that there are capital opportunities that are nurturing for people and the planet. Proud to be a lender to RSF, and to refer so many people to your work, David Hills

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