Kellogg-Morgan Stanley Sustainable Investing Challenge: The Incarceration Investment Fund
By Janie Baird (2Y 2021) and Josh Nathan (JB-MBA 2021) on behalf of the Incarceration Investment Fund Team
The Incarceration Investment Fund Team (from left): Andres Weber Le-Bert (2Y 2021), Daniel Chavarriaga (2Y 2021), Josh Nathan (JD-MBA 2021), and Janie Baird (2Y 2021).
The Kellogg-Morgan Stanley Sustainable Investing Challenge (KMSSIC) invites graduate students to develop investing solutions for critical social and environmental challenges. Graduate students from around the world work together in small teams to design and pitch innovative financial instruments to leaders in the sustainable investing space. This year’s competition saw a 34% increase in applications and included 414 students (from 87 different schools and 50 different countries) making up 123 teams. Solutions targeted impact across 33 countries and a variety of challenges including renewable energy, plastic waste recycling, and bee farm sustainability.
Our team’s solution — the Incarceration Investment Fund or IIF — is a mutual fund targeting individuals with prolonged incarceration sentences of ten or more years to invest in preparation for their reentry. By providing access to working capital upon their release, the IIF enables returning citizens to overcome barriers associated with reentry and strives to reduce recidivism.
From class project to the “Final Four”
A few of our teammates were enrolled in an impact investing course during Winter Quarter, taught by Professor David Chen, adjunct professor of finance and faculty lead of impact investing, Dave started the KMSSIC 11 years ago and he encouraged our class to submit ideas for the competition. Our teammate, Josh Nathan, was working with incarcerated individuals at the time, so we decided that we wanted to focus on this problem of recidivism. There was a lot of brainstorming in the early stages, and it felt like we were spinning our wheels. Dave kept encouraging us to dig deeper in our research and stakeholder interviews — to really “understand the problem,” and to get beyond complex investment approaches towards an elegant solution to a significant problem.
We interviewed dozens of people in Chicago to better understand the challenges posed by reentry and recidivism – including financial institutions, philanthropies, nonprofit organizations working in the criminal justice space, government entities, and recently incarcerated individuals. Ultimately, we recognized that every challenge a returning citizen faces — from securing basic food, clothing and shelter to finding sustainable transportation and employment — coalesces around a singular issue: lack of access to working capital. From there, we quickly realized that adopting a simple, reliable financial instrument, like a mutual fund, could be a very viable (yet innovative!) solution.
Our idea was, in short, to develop something akin to a retirement account — a simple mutual fund invested broadly in market equities and fixed income instruments — for people entering incarceration for 10+ years. These investors deposit as little as $250 upfront, and supplement it with an additional $6/month while in prison, derived from family sources or earnings while incarcerated. Philanthropic sources match that input. Ultimately, individuals benefit from the appreciation of their investment over 10+ years and receive a cash windfall upon release from incarceration. We also provide financial education and support to these returning citizens, to help them manage this money wisely.
The power of this idea comes from the fact that it leverages an age-old market mechanism — capital appreciation over 10+ years — but markets to a new class of investors who’ve never been meaningfully served by investment opportunities. Such services are incredibly empowering and would help them overcome challenges they face upon release — challenges which American taxpayers often must cover through welfare programs or the extremely high costs of recidivism.
Each of us brought unique experiences and skills to the team: Andres has a back in consulting, Daniel in investment banking, Janie in consulting and general management, and Josh in nonprofits and legal. We pooled these experiences and skills to develop a robust team dynamic that aided in our success throughout our research and the competition.
We were honored to make it to the final four at KMSSIC, and we developed some wonderful connections along the way.
Moving the Investment Incarceration Fund forward
Throughout our research and the competition, we heard inspiring stories of resilience – particularly from Chicago-area nonprofits and returning citizens. We hope that we can continue beyond the case competition to refine our product and pitch to potential investors. Returning citizens are an underserved and vulnerable population. By affording access to investing opportunities at the onset of incarceration, IIF guarantees a financial cushion for returning citizens so that they can more adequately begin to rebuild their lives and impactfully re-integrate into their communities