Why Performance Matters

I’ve been thinking about Ford’s F-150 pickup truck. The car was America’s biggest-selling vehicle in 2022, as it has been for the last forty-six years.

According to Boston Consulting Group, in 2019, the total revenue generated by the Ute was beaten only by Apple’s iPhone – raising $42bn.

Last Spring, Ford launched the F-150 Lightening, an electric version of its best-seller. Ford’s CEO described it as the start of America’s real transition to electric vehicles.

Ford was canny about the truck’s positioning, given the truck’s popularity and loyal audience. They focused the car on its performance, not its environmental benefits, with a proposition based on several features.

• First, it looked the part. It had the bodywork and styling that matched every other gas-guzzling F-150. No Sci-Fi, truck-of-the-future here.

• It has unrivalled speed, what every petrolhead wants to hear. It is the fastest-accelerating F-150 ever, achieving 0-60 in just over four seconds. That’s less time than it takes to read the previous sentence out loud.

• And it’s powerful too, capable of pulling five-ton loads, the weight of a bulldozer or the largest Winnebago trailer – pulled by batteries, not engines.

• Those batteries can also run as generators, powering building sites and homes when the state grid fails. Essential if you live in Texas, where 16% of F-150s are sold, and power failures impact more people than anywhere else in America.

• Finally it’s cheap. The entry-level model is less than $40k, making it among the cheapest electric trucks.

The positioning is precise and confident - choosing a Lightning does not compromise what you’re used to.

Nowhere does Ford mention the environmental benefit the truck has on carbon emissions. It’s an all-round better-performing version of what owners have grown to love – expect more of the same, only better.

That focus on performance led me to reflect on a challenge facing impact investing.

This small but growing approach to asset management aims to create returns by investing in solutions that tackle planetary problems.

It’s a wonderfully simple idea. Invest in asset classes and businesses aiming to solve the world’s biggest challenges.

Impact Investing is in its infancy, but it holds big ambitions to replace traditional asset management. It strives to move from the margins to become mainstream, setting standards now to shape all capital allocation. 

Many private investors and a few family offices like what they see. Some parts of the retail market are beginning to be persuaded too. But access to impact funds is limited.

The challenge the sector faces is scale. Achieving a retail model and satisfying the regulators requires more Institutional Investors to join in – those looking after company pensions or University endowments who are heavily focused on performance.

Yet the typical brand proposition of an Impact Investor is to focus on what and where it is investing.

Websites are full of imagery of wind farms, crystal clear mountain streams, lush landscapes and exotic wildlife alongside the smiling faces of well-fed tenants in social housing.

It’s distinctive imagery in an industry saturated with financial cliches but also risks reinforcing a concessionary position. The imagery and narrative would sit as comfortably on a charity website.

And so, some impact funds are seen as philanthropic opportunities rather than income-generating. Great for a retail market but less attractive to the institutional fund manager.

_

Websites are full of imagery of wind farms, crystal clear mountain streams, lush landscapes and exotic wildlife alongside the smiling faces of well-fed tenants in social housing. It’s distinctive imagery… but risks reinforcing a concessionary position.

–

So is it time to shift the narrative to deliver the scale needed to reach a retail market? What could impact investors' borrow from Ford to elevate their performance and reassure fund managers?

Given the challenge of high inflation and rising interest rates of central banks, it's hard for many in capital allocation to talk about performance.

But does Impact’s pitch need to shift for it to become a legitimate mainstream option?

Undoubtedly there is a complexity in leading with performance. Some single-themed impact funds are performing well against traditional investing. But others with more diversified, long-term impact products may take decades to mature, so needs patient capital. 

Another complexity is the balance between risk and return. Defining good performance is tricky when it relies on the investor's appetite, whose expectations have been shaped by the mainstream’s track record.

So it’s probably too simplistic to say that scale comes when the sector shifts to confidently say choosing an impact fund, like the Ford F-150 Lightening, is more of the same, only better.

But I wonder if it’s time to focus more on what performance has or can deliver, alongside greater transparency on how it got there?