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Impact Investing Won't Save Capitalism – Harvard Business Review

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Suzanne Clements/Stocksy

Next month will be the anniversary of the U.S. Business Roundtable’s 2019 call for a shift from “shareholder capitalism” toward “stakeholder capitalism.” Business leaders asked us to imagine a transformed world, but a bat virus in Wuhan had its own ambitious plans — and has, for the time being, transformed the world in quite another way. It has thrust government to the center, pushing business, whatever its approach to capitalism, to the sidelines.

Nobody could reasonably expect business alone to fix the pandemic. Nonetheless, some investors under the banner of “impact investing” argue that business alone will be able to fix the other big problems ailing the global economy, such as climate change or global female literacy, without sacrificing commercial returns. This view has garnered interest from major banks, consultancies, business lobby groups, and even former prime ministers. One of impact investing’s leading champions, Sir Ronald Cohen, believes that it could be the “revolution” that will save capitalism and solve many of the world’s greatest problems.

It is an enticing vision of an enlightened post-pandemic economy, and, as an impact investor and economist, we support its ambitions. However, if we really want to reform capitalism, then impact investing as it is traditionally conceived will not be enough. The pandemic is not a mere anomaly; there are profound limits to what business can do profitably in normal times too. We need to reform the rules that govern how our economy works — and impact investors have a critical role to play.

Why Impact Investing Is Not Enough

There are certainly examples where impact investment has been successful at generating both a commercial return and a positive impact. But there are also those who argue there is a trade-off between profitability and impact. Who is right?

The answer is “both.” An easy way to clarify the issue is by looking at a typical “carbon cost curve”, which shows the financial costs of investments that would reduce carbon emissions. Below is an updated cost curve recently produced by the Energy Research Centre of the Netherlands.

Each bar represents a different investment. The width of a bar shows how many gigatonnes per year of greenhouse gas emissions that investment would save, and the height indicates the cost per tonne saved. For the bars below the zero-cost line on the far left, costs are negative — i.e. these are investments that are profitable even without policy change. The bars above the zero-cost line, on the other hand, are investments that come with net costs and will only become competitive if investors are rewarded for the carbon they save. They need policies such as subsidies or carbon pricing, and those on the far right need a very high carbon price indeed.

The leftmost part of the curve shows there are some opportunities where it is already profitable to cut carbon emissions. Typical examples include household energy efficiency projects or the best sites for wind power. These represent opportunities for an impact investor (or a regular investor) to do good while potentially making a commercial return.

However, to limit global warming to 1.5◦C, as agreed by 196 countries in Paris in 2016, we must rely mostly on approaches that sit “above the line,” such as expanding wind energy to some of the unprofitable sites or using carbon capture and storage. To achieve the Netherlands’ 2050 target of a 95 percent cut in emissions on 1990 levels, all the investments in the area shaded blue need to be funded. The Energy Research Centre estimates that, even accounting for future technology change, it would take a carbon price of nearly €200/tonne to make these profitable.

If that carbon price isn’t in place, then the activities “above the line” remain unprofitable for private investors, even though they provide a positive return to society as a whole. Investing in them without a carbon price would mean a lower rate of return than investing in business-as-usual technologies. This is the fundamental trade-off that impact investors face across issues from pollution, to plastic in the oceans, to female literacy in Sub-Saharan Africa.

The key insight is this: If there really were no trade-off between profit and impact, then cost-curves for all these problems would be made up solely of investments “below the line” all the way along. If this were the case, then we wouldn’t need impact investors. Regular investors would already be investing in solving climate change, removing plastic from the oceans, and educating the world’s women.

But there’s another problem. Even many of the “below the line” actions often aren’t profitable because there are so-called split-incentives, transaction costs, and opportunity costs — economic jargon for the sort of barriers that block investment or involve extra costs beyond the price of the technology. These barriers explain why governments, not markets, have taken the lead with massive schemes to roll out energy-efficient residential LED lighting, for example.

Impact investors are right that it is sometimes possible to overcome these barriers, and it is sometimes possible to marry competitive returns and social good by tackling actions “below the line,” as they have in small energy efficiency or renewables investments.

But their critics are also right that “sometimes possible” will not be enough to effect real transformation. In the case of climate change, economists estimate that meeting the 1.5◦C target will cost around $10 trillion by 2030. In other words, if private investors were to try to solve climate change alone, they will need to be content with losing about $1 trillion per year.

Of course, much more than $10 trillion would be saved by solving climate change, but because the rules of the game don’t reward carbon mitigation, private investors struggle to capture that value. To make these activities profitable for investors, the IPCC estimates we’ll need a carbon price between $135 to $5,500 per tonne. Let’s hope it’s on the lower end.

This is the new “inconvenient truth” of the impact investing age: There are simply not enough below-the-line options to invest in, and much of what we must do will be unprofitable without a change in the rules. This same truth applies to myriad other social and environmental problems that we urgently need to solve, from pollution to poverty to poor public health.

Our governments have wasted nearly three decades ignoring the IPCC and other experts on climate change. We cannot waste another decade — not even a year — ignoring these economic realities.

The Rules of the Game

Let’s turn to the rules that govern how our economy works. While the Business Roundtable urged a shift to stakeholder capitalism, the fact remains that the rules of the game firmly entrench shareholder capitalism and largely ignore stakeholders. As we’ve argued before, businesses must seek profits given the less profitable will tend to be muscled-out by the more profitable over time.

Under today’s rules, some harmful investments offer inflated profits because investors don’t have to pay for the damage they cause through, for example, carbon emissions or the health impacts of air pollution. Meanwhile, many worthy investments are unprofitable because investors are not rewarded for their associated benefits, such as improvements to health by reducing air pollution.

To bring about Sir Ron Cohen’s revolution, in which investment “does not require reducing profits in favor of impact,”  our only choice is to change these rules.

We already know what we must do: “Lift the line” with carbon pricing, subsidies or regulations, so that more actions fall below it and attract investment. Economists have agreed that this is the way to deal with externalities — whether carbon emissions, ocean plastic or illiteracy — for more than a century. When investors pay the costs of their inputs and are rewarded for the value they create, then the gap between investing and impact investing disappears.

In other words, once externalities have been internalized, then all investing becomes impact investing. A baker can profit from feeding the community, a builder can profit from housing the community, and a forester can profit from sequestering emissions for the community. This was Adam Smith’s revelation two and a half centuries ago: when individual incentives are aligned with what creates economic growth for society as a whole, the “invisible hand” is free to work its magic.

The Future of Impact Investment

What does this mean for impact investors? We think they have three critical roles to play.

The first is in making the most of the current rules of the game, by discovering opportunities that have fallen “below the line” or finding smart ways to overcome barriers that block below-the-line investment. Tesla’s world first utility-scale battery in South Australia is a good example of investment at the innovation frontier. It showed that the technology is ready to be profitable, opening the floodgates for battery projects across the world. More than ever we need bold innovators to lead the way so that others may follow.

The second is in encouraging philanthropists to aim higher. Mike McCreless calls this working at the “efficiency frontier”: when seeking a given impact, always look for the highest-return way to achieve it. Returns may often fall short of commercial rates, but when they are as good as they can be given the limits of the rules, each dollar has more impact. The Swiss Agency for Development and Cooperation SDC and Roots of Impact have made similar arguments in developing the Social Impact Incentives (SIINC) framework. This is impact investing as smarter and more efficient philanthropy.

Finally, perhaps the most important role for impact investors is to lobby for changing the rules. Impact investors could be a powerful voice urging governments to internalize externalities and so turn all investment into impact investment. New incentives, whether a price on carbon or some other mechanism, greatly expand the horizons for marrying social return with profitability. In doing so, they greatly expand the opportunities for private sector innovators and smart philanthropists.

With a more nuanced view of how impact investing fits into our economic system, we might have a chance of realizing Sir Ronald Cohen’s revolution: a world where profit and impact walk hand-in-hand.

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Bitcoin To Space Travel: 5 Eagle Experts Think These Investment Ideas Can Soar In 2021 – Forbes

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Each year, MoneyShow.com asks the nation’s leading advisors for their favorite ideas for the coming year. Consistently among the top performers every year are the investing experts from Eagle Publishing; here, 5 of these advisors highlight at their favorite ideas for 2021, ranging from e-commerce and cryptocurrency to sports betting and space travel.

Hilary Kramer, GameChangers

My top stock pick last year, Chewy (CHWY), rose 209%. Ironically enough, I loved Chewy before the pandemic was even a rumor and now that it’s been characterized as a “COVID stock” I love it even more.

People were already buying pet food online and having it shipped to their doors because these bags and cans get heavy and nobody wants to run out. And unlike Amazon (AMZN), which has been dithering for years about getting serious about pet products, there’s huge word of mouth here.

The lockdowns only accelerated the growth curve by a few months, nudging the company closer to ultimate sustainable profitability. People burned by the dot-com frenzy laughed at this company. They’re not laughing now.


The 100 Best Stocks to Buy for 2021: The top performing newsletter advisors and analyst are back, and they just released their best stock ideas for 2021. Get your FREE copy of MoneyShow’s 2021 Top Picks report here and see why the nation’s leading investment experts believe these stocks will significantly outperform the market in 2021.


Airbnb (ABNB) — an aggressive favorite for 2021 — waited years to go public, and I think the timing was perfect. The pandemic set growth back a year, giving post-IPO shareholders a chance to capture more of the company’s robust expansion.

As far as I can tell, lockdowns didn’t change travelers’ habits or preferences one bit. If anything, people seem to be gravitating away from hotels faster than ever toward low-contact short-term home rentals . . . and that’s not even factoring in the potential for a post-lockdown vacation boom.

Management took huge steps to contain out-of-control costs going into the company’s Wall Street launch, resulting in healthy $500 million in “adjusted” EBITDA for the debut quarter. Is that the same as old-fashioned profit? No way.

But in what’s currently a blue-hot IPO market, it proves that ABNB can make money as long as people keep listing houses. Residential real estate indicators tell me we’re on pretty firm footing here.

Sally Beauty Holdings (SBH) is a conservative idea for the coming year and a recommendation in my Value Authority newsletter. There’s still plenty of value to capture as the beauty products market looks toward a post-lockdown world and new brands rise to fill the gap faltering competitors like Coty (COTY) and Revlon (REV) leave in their wake.

Management spent the year fortifying the balance sheet. Now it’s time to dazzle the world. Revenue has stabilized thanks to what amounts to curbside pickup programs that ultimately build momentum for true direct-to-consumer online sales.

While it might take another year to get all the numbers back on trend, I’m heartened by the way my earnings models for 2021 have started calling out for revision to the upside.

There’s huge value here at barely 10X last year’s depressed EPS. And if you shunned the stock while growth decelerated, how do you feel now that it’s looking at 50% re-expansion in the coming year? There’s no intrinsic reason this isn’t already an $18 stock.

Bryan Perry, Hi-Tech Trader

My top speculative idea last year was Guardant Health (GH), which rose 65%. The stock is trading to new all-time highs as the market for liquid biopsy testing continues to receive growth adoption by cancer treatment centers.

Historically, the presence of cancer has been confirmed via tissue biopsy and examined under a microscope. One in five tissue biopsies fails to provide sufficient material for analysis.

Liquid biopsy overcomes this drawback by virtue of using blood samples, is virtually painless, is easily administered, considerably less expensive and highly accurate on one blood draw. 2020 revenues grew by 32% and 2021 revenues are forecast to grow by 36% to $390 million. I’m looking for further gains. 

Virgin Galactic Holdings (SPCE) started trading in late 2017 and is co-founded by Sir Richard Branson. The company is a vertically integrated aerospace and space travel company, pioneering human spaceflight for private individuals and researchers, as well as a manufacturer of advanced air and space vehicles. It is developing a spaceflight system designed to offer customers a unique and transformative experience.

SPCE provided an update following its recent test flight on December 12, 2020 that came up short of expectations. During the test flight, the rocket motor did not fire due to the ignition sequence not completing and therefore not achieving its objective of reaching outer space.

Following this event, the pilots conducted a safe landing and return, as planned, to Spaceport America, New Mexico. The company is preparing further test flights for early 2021.

Shares of SPCE were trading at $35 just prior to the December 12 test flight and have since retreated to $25 where they trade today. The technical pattern is just now showing signs for reversing higher where I want to get involved.

SelectQuote (SLQT) — my top pick in my Quick Income Trader — pioneered the direct-to-consumer model of providing unbiased comparisons from multiple, highly rated insurance companies. This allows consumers to choose the policy and terms that best meet their unique needs,.

Two foundational pillars underpin SelectQuote’s success: a force of more than 1,000 highly trained and skilled agents who provide consultative needs analysis for every consumer, and proprietary technology that sources, scores and directs high-quality sales leads.

The company has three core business lines: SelectQuote Senior, SelectQuote Life and SelectQuote Auto and Home. SelectQuote Senior, the largest and fastest-growing business, serves the needs of a demographic that sees 10,000 people turn 65 each day.

It provides a range of Medicare Advantage and Medicare Supplement plans from 15 leading, nationally recognized carriers, as well as prescription drug plans, dental, vision and hearing plans.

SelectQuote has posted two consecutive quarters that featured better-than-forecast results, increased its revenues by 90.5% in the third quarter to $124 million and set itself for a move back towards its 2020 high of $29. The stock currently trades at $22.25.

Meanwhile, my top conservative idea from last year was Walt Disney Co. (DIS), which rose 26% in 2020. The stock is enjoying strong tailwinds that support a higher stock price for 2021.

Although the Disney Plus streaming business dominated the headlines in 2020, it’s the return of the theme park business in 2021 that will likely be the big news as pent up demand should produce record attendance later this year.

The stock probably has another 10%-15% upside where valuation for the stock would be on the high side where booking some profits might prove timely. Longer-term, the stock is a solid hold.

Mark Skousen, Forecasts & Strategies

Grayscale Bitcoin Trust (GBTC) is a great speculative stock that invests in Bitcoin and other cryptocurrencies. Based in New York, Grayscale is the world’s largest digital currency manager. It offers exposure to Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Horizen, Litecoin, Stellar Lumens, XRP and Zcash. 

Bitcoin and other digital currencies are viewed as an alternative to gold as an inflation and crisis hedge. Consumer are still not using Bitcoin for retail purchases, largely due to its volatility.

But that could change now that two huge consumer-payment companies, PayPal (PYPL) and Square (SQ), have added it to its payment system. Bitcoin has also drawn institutional interest because of its technological innovation. 

JPMorgan (JPM) recently stated, “We have always believed in the potential of blockchain technology and support cryptocurrencies as long as they are properly controlled and regulated.” 

Blockchain is an integral part of the digital currency world. It has great promise in data storage and has particular application to record keeping in financial markets, real estate (eliminating the need for title insurance) and even politics (eliminating voting fraud). 

The famed commodity trader Paul Tutor Jones, Wall Street legend Bill Miller and hedge fund billionaire Stan Druckenmiller are fans. The stock was up sharply last year, and is undoubtedly selling at a premium, so expect lots of volatility along the way.  

Bob Carlson, Retirement Watch

You don’t need me to tell you that 2020 was a wild year with many changes and surprises. While the details will be different, expect more of the same in 2021.

WCM Focused International Growth (WCMRX) is a top pick for conservative investors in the coming year This open-end mutual fund invests in a small number of stocks of which the managers consider to be great growth companies around the globe.

The fund seeks to identify growing companies that seem likely to be able to maintain that growth for years. The average holding period for stocks in the fund is about five years.


The 100 Best Stocks to Buy for 2021: The top performing newsletter advisors and analyst are back, and they just released their best stock ideas for 2021. Get your FREE copy of MoneyShow’s 2021 Top Picks report here and see why the nation’s leading investment experts believe these stocks will significantly outperform the market in 2021.


Investors need to plan for the probability that investment returns in the coming years are likely to be lower than they’ve been in some time, maybe ever.

That’s because interest rates are at historic lows. Returns of stocks and other investments are based on the risk-free rate of return, which is the yield on short-term treasury debt. Over time, returns on stocks and other investments can exceed the risk-free return by only so much.

Only a few pockets of the investment universe are extremely high valuations or in bubble territory. But the strong returns stocks and a few other investments had the last few years aren’t sustainable indefinitely.

The fund has been among the top performers in its category since its inception and is likely to continue the above-average performance.

An aggressive pick for the coming year is Draftkings (DKNG). It’s one of the leaders in online sports betting. Sports betting is rapidly shifting online. Draftkings will benefit.

The company and the whole sports betting sector took a hit in 2020 as most major sports were canceled or limited. More major sports events should be held in 2021 as the vaccines are rolled out, increasing interest in gambling.

In addition, a number of states are permitting sports gambling for the first time. There’s a good prospect that New York will do so in the near future. Despite strong returns for much of 2020, the stock took a steep drop in the second half and should be poised for a recovery in 2021.

Jim Woods, Bullseye Stock Trader

One of the biggest trends of 2020 also is a trend that I suspect is likely to continue into 2021, and that is the stunning rise and growing acceptance of cryptocurrencies such as Bitcoin.

Now, I am a fan of Bitcoin in theory, as well as the blockchain digital technology that it operates on. Yet investing in actual Bitcoins or in the Bitcoin ETF can be extremely volatile. But I am a stock picker at heart, and that means I like to buy into companies that are benefitting from a specific trend.

Another way to put this is I like to buy the so-called “picks and shovels” plays, meaning that instead of investing in gold during the gold rush, I would have invested in the companies making and selling the picks and shovels used to dig for that gold.

In the cryptocurrency space, there aren’t many picks-and-shovels plays. However, there is one very good stock that fits that bill, and it is Voyager Digital Ltd. (VYGVF). 

Voyager operates a digital platform that enables users to buy and sell digital assets (cryptocurrencies) across multiple exchanges in one account primarily in the United States and Canada. The company is considered an agency broker, which is basically a platform that is trying to get the best price on a security for their clients.

Other cryptocurrency exchanges want to fulfill a customer’s order on their platform, but Voyager will scan through a list of 10 to 12 exchanges looking to fill your order at the best price.

Interestingly, a lot of these exchanges are not available to the average North American retail trader, as most of the largest crypto exchanges are based in Asia and Europe and do not allow North America retail investors to trade on their exchanges.

In return for the better trade execution, Voyager gets paid, and they take a portion of that spread they have found on the purchase. On average, Voyager makes 65 basis points on each trade. This operation accounts for about 70% of the company’s revenue. The other 30% of revenue comes from security lending.

On January 5, the company announced that it expects Q4 2020 revenue to reach $3.5 million. That’s a 75% increase from the third quarter, and a whopping 3,877% from the fourth quarter of 2019.

Voyager also said that its December revenue run rate was over $20 million, compared to $200,000 in December 2019 (run rate is estimated revenue extrapolated from available figures).

The company also said that its assets have continued to grow, increasing over three times from the September quarter to over $265 million in early January.

“As widespread adoption of cryptocurrency grew in the latter part of 2020, we have seen 2021 get off to a quick start and we are well-positioned to continue our extraordinary growth through 2021 and beyond,” said Stephen Ehrlich, co-founder and CEO of Voyager.

Ehrlich is a big player in the online/digital brokerage business, as he was a former executive at E*TRADE and at Lightspeed Financial. This is another thing to like about Voyager, as its executive team is filled with big hitters from the online brokerage, investment and technology sectors.

Of course, the best thing about Voyager is the share price performance, which in 2020 was an incredible gain of 1,650%! This is the kind of big upside we can participate in with this cryptocurrency trading platform company — one that I consider the very best picks-and-shovels play on this exhilarating sector.

I am a huge fan of Big Tech, not just for the money that those stocks have made me and my subscribers, but also because this is where the innovation, technological prowess and unrivaled Silicon Valley brain power reside. Moreover, this is where the big earnings growth resides.

Of course, technologic savvy, innovation and big brain power aren’t just found in Silicon Valley and other U.S. tech hotbeds. Sometimes, the tech is south of the border, and sometimes it’s in South America.

Let me ask you this: How would you like to own Amazon (AMZN), Etsy (ETSY), PayPal (PYPL), and eBay (EBAY) all in one stock — and in a stock that’s outpaced 95% of all other stocks in the market with a gain of some 193% in 2020? That’s what you get with Latin American e-commerce giant MercadoLibre, Inc. (MELI).

This company is sometimes called the “Amazon of Latin America,” because it’s that region’s leading e-commerce platform. MELI — my top pick for my Intelligence Report newsletter — operates in 18 countries spanning from the company’s home base in Argentina to Mexico.


The 100 Best Stocks to Buy for 2021: The top performing newsletter advisors and analyst are back, and they just released their best stock ideas for 2021. Get your FREE copy of MoneyShow’s 2021 Top Picks report here and see why the nation’s leading investment experts believe these stocks will significantly outperform the market in 2021.


This company is part online marketplace, part fintech and part e-commerce retailer. You see, in addition to being a storefront for Latin American retailers, it also sells its own items. Plus, it provides the payment facilitation to get the transactions done.

All of this adds up to a stock with multiple bullish “NewsQ,” i.e., a term I developed to describe the confluence of news-related and secular-trend related tailwinds pushing a stock forward. One strong bit of positive NewsQ here is the demographic tailwind of a rapidly growing Latin American middle class.

In November, MercadoLibre posted its most-recent earnings results, which the company said came in at 28 cents per share in Q3, a metric that easily beat estimates for earnings per share (EPS) of just 8 cents.

Moreover, the top line also was impressive, with revenue in the quarter up some 85% year over year. Look for more of this kind of strong fundamental performance in 2021 — and look for more market-crushing gains in MELI shares.

Meanwhile, my Top Pick from last year was human resources software firm Paycom Software (PAYC). The stock was up a very robust 71% in 2020, which was remarkable given the constrictive COVID climate and the squeeze it put on so many businesses. The success of Paycom shows the resilience of a great enterprise with an outstanding product that adds to it customers’ bottom lines.

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Vintage Investment Partners Signs United Nations Supported Principals for Responsible Investment (UN PRI) – PRNewswire

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TEL AVIV, Israel, Jan. 25, 2021 /PRNewswire/ — Vintage Investment Partners announced today that it has become a signatory and partner to the PRI. The PRI is an international global network of investors, asset managers, owners, and service providers, working together to put responsible investing into practice. The principles, which are voluntary, aim to provide a framework into the investment decision making process and ownership practices.

Vintage Investment Partners believes in the importance of responsible investing in creating positive business growth. By becoming a signatory, Vintage is publicly demonstrating its commitment to responsible investment, incorporating environmental, social and governance (ESG) factors in its investment decisions. Vintage’s objective is to help shape a more sustainable global tech system when building its portfolio by encouraging the fund and companies to use business best practices in all aspects of their activities. 

Vintage Investment Partners will implement the voluntary PRI principals in its practices and decision-making process and will work on developing investing guidelines, which will describe Vintage general approach to ESG matters, with consideration of how these will be integrated.  

“Vintage is honored to join the UN PRI initiative. Since our founding, ESG factors have been extremely important to how we at Vintage make our investment decisions,” says Alan Feld, Co-Founder and Managing Partner of Vintage. “We have always taken a values-based approach to the management of our firm, the behavior we expect of our venture capital fund managers with their due diligence processes and capital allocation decisions and the conduct and activities of our direct portfolio companies.” 

Vintage Investment Partners has been known for standing up for its values and leading by example. Vintage is the founder and the principal funder of the Power in Diversity Israel Initiative (www.powerindiversityisrael.com). The initiative, comprised today of over 130 startups and over 35 venture funds, promotes, and facilitates the participation of more women and more minorities in the startup ecosystem. In addition, Vintage led the effort to reduce the likelihood that female entrepreneurs will face sexual harassment by potential VC investors. Over 50 Israeli venture funds signed on to the policies and a retired female expert judge was appointed to address claims by entrepreneurs of harassment by venture investors.

“We are delighted to welcome Vintage Investment Partners on board as a signatory,” commented Fiona Reynolds, CEO of the PRI. “It is great to see their commitment to incorporating ESG and responsible investment practices, and we look forward to working together in future.”

ABOUT VINTAGE:

Vintage Investment Partners is a global integrated venture platform combining Secondary Funds, Direct Co-Investment Funds, and Fund-of-Funds. With over $2.1 Billion under management across 12 funds in Israel, Europe and the U.S., the firm is invested in several of the world’s leading venture funds and late-stage startups, has exposure directly and indirectly to over 2,200 technology companies. Vintage leverages its unique position in the ecosystem, unmatched network and a database of over 8,500 companies to provide the Value-Added Services, a free of charge service, connecting thousands of venture-backed technology startups across the world to hundreds of corporations seeking support in their digital journeys, helping drive an innovation ecosystem. The Value-Added Services also offer funds and startups with access to exclusive data and market insights.

Vintage media contact person:
Danielle Bash, Head of Marketing
[email protected]

SOURCE Vintage Investment Partners

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China Overtook US in Foreign Direct Investment, UN Agency Says – BNN

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(Bloomberg) — China overtook the U.S. as the largest recipient of foreign direct investment in 2020, a year in which overall global flows cratered by 42% as a result of the coronavirus pandemic, a United Nations trade agency said.

Flows fell to an estimated $859 billion from $1.5 trillion in 2019, according to the UNCTAD Investment Trends Monitor. It was the lowest level since the 1990s and 30% below the investment trough that followed the 2008-09 global financial crisis.

While the world as a whole struggled, China held on, said UNCTAD, the United Nations Conference on Trade and Development. It became the world’s largest FDI recipient with flows rising by 4% to $163 billion.

A return to positive GDP growth and a targeted investment facilitation program helped stabilize investment in China after the first coronavirus lockdowns there, the agency said.

Among Chinese sectors, high-tech industries saw an FDI increase of 11% in 2020, and cross-border mergers and acquisitions rose by 54%, mostly in information and communications technology, and pharmaceutical industries.

Flows to North America slid by 46% to $166 billion, and those to the U.S. alone fell 49% to an estimated $134 billion in 2020.

Europe fared worse, with flows down by two-thirds to a negative $4 billion. In the U.K., FDI fell to zero, and declines were recorded in other major countries. Elsewhere, flows to Australia slumped but those to Israel rose.

Globally, the UN agency expects foreign direct investment to remain weak in 2021 due to uncertainty over the evolution of the Covid-19 pandemic.

“The effects of the pandemic on investment will linger,” said James Zhan, director of UNCTAD’s investment division. “Investors are likely to remain cautious in committing capital to new overseas productive assets.”

©2021 Bloomberg L.P.

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