Stone Impact Forum. For those who have never been in this facility, this is an exact replica of the United States Senate Chamber, down to the color, down to the dimensions, down to the screw heads. The only thing that is different is that because of Senate protocol, we are not allowed to use the United States Senate symbol in the center of this hall, and therefore it is blank. This building was Ted Kennedy's vision to celebrate the importance of the United States Senate, and was carried to fruition by Ambassador Vicki Kennedy after his passing. The Institute carries on Ted Kennedy's legacy by promoting the search for common ground, and by teaching young people the importance of the world's most significant deliberative body. We have a program called the Senate Project that brings the left and right together in this chamber. It is moderated and broadcast by Fox News, and it proves that working together, as Ted Kennedy demonstrated throughout his career, can yield an outcome that cannot be achieved by working apart. I want to thank in particular Jim and Kathleen Stone, who have been generous sponsors of the Institute over the years, and whose forums have provided a platform for people who are responsible for positive social change in this country. Without their generosity and their commitment, we would not be here tonight.
We are here tonight to discuss the American dream. What it means, is it alive and well, or is it a fading concept? We have two people here who, in their own right, represent the American dream. These are people who have not only benefited from the American dream, but have added to the quality of life in this country, and their contributions are measurable. Tracy Palandjian is the CEO and co-founder of Social Finance, where she has been at the forefront of impact investing and cross-sector collaboration, helping to design and scale new models to deliver better outcomes in workforce development, health, housing, and education. David Rubenstein is the co-founder and co-chairman of the Carlyle Group. He is a frequent face on television through his Bloomberg show Peer to Peer Conversations. He's the owner of the Baltimore Orioles, and he is a very frustrated fan of Duke basketball as of last night. He is a prolific fundraiser, a philanthropist, and among David's many gifts to America, he paid for the restoration of the Washington Monument. Indeed, David is an iconic monument in and of himself, and we are thrilled to have him here tonight moderating this discussion. We are fortunate to have them both here, and we are anxious to hear their thoughts on the status of the American dream and its future. We are grateful for both of you to be here, and we are looking forward to a lively, productive, and informative program. Thank you very much.
Thank you very much for the kind introduction, and thank you all for coming. I, as a young man, when I was 25 years old, my hair was dark, I worked in the Senate, and I saw Senator Kennedy up close. I was working for a senator who was in a plane crash with Senator Kennedy, Birch Bayh. Birch Bayh and Ted Kennedy were in a nearly tragic plane crash in 1964. They both survived, though obviously Senator Kennedy had some back problems, and Birch Bayh had some problems as well, but they were close friends, and I got to know Senator Kennedy reasonably well for a junior staffer, and I always admired when he came into the Senate, and when he talked, people listened. And he had enormously well-qualified staff, and he just got things done in ways that you don't often see in the Senate these days. And Senator Kennedy, I also admire him for many things, but one of the things he did was he spent 44 years of his life as a member of the Kennedy Center for Performing Arts, the John F. Kennedy Center for Performing Arts in Washington. For 14 years, I chaired that board, in part because of my respect for Senator Kennedy and my respect for President Kennedy. There is another chair now. So I'm not as deeply involved as I used to be, but I just want to say, without filibustering, that I really admire what Senator Kennedy did as a senator, incredible senator, and great supporter of the arts, and particularly Kennedy Center. What I'd like to do before talking with Tracy, which is what you all came to hear, is say something different. It's not a filibuster, but I just wanted to say something, and I want to thank everybody for giving me and Tracy the right to say this. I wanted to just remind people why we're celebrating the 250th anniversary of our country this year, and what we're actually celebrating, because many people don't know — leaving aside while some people don't know how to say semiquincentennial — many people have really forgotten what we're celebrating. So, let me just, if you indulge me for a few minutes, on what we're actually celebrating, and think about this. What we're celebrating is 1776. Why are we celebrating that year? In 1776, we declared war on England. But usually when you declare war, that doesn't mean you're going to celebrate it or you're going to win. And why don't we celebrate 1492, when Christopher Columbus came? Or why don't we celebrate 1620, when Plymouth Rock was reached by the pilgrims? Why don't we celebrate 1619, when the first Virginia colony was created? Or celebrate 1565, when St. Augustine was actually the first settlement in the United States? Why don't we celebrate that? Or why don't we celebrate when we adopted the Constitution? In 1789, we adopted a Constitution. That's the law under which we govern. Why isn't that the beginning of the country? Or a couple years later, when the Bill of Rights became part of it? Why don't we celebrate that as the beginning of the country? Or more importantly, why don't we celebrate when we ended slavery, the birth defect of this country? We ended it in 1865. Why don't we celebrate that as the beginning of the country? Or when women got the right to vote in 1920? Why don't we celebrate that as the beginning of the country? But we don't. We celebrate 1776. Why? Well, it's a very interesting thing. Go back, and Boston knows this probably as well as anybody. What happened was after the French and Indian War, it's a seven years war, as some people called it, the British had said, "We spent a lot of money defending you colonies, and maybe you should pay us back, and we'd like to have some taxes." And if you're all familiar with this, taxes were imposed for the first time ever on the colonies. The 13 colonies were not happy with it, because they had never paid taxes to the British, but the British said, "We spent a lot of money defending you, and now we have to have troops making sure that the French and the Indians don't invade again, so we want some tax revenue." And the colonies were very upset with that, and as you probably know from your history in grade school and so forth, it went back and forth. They would impose a tax, and the colonies would be upset, and then we'd take it off, they'd have another tax, and so forth. This went on for quite some time. And ultimately, the colonies just got tired of this, and they had the famous Boston Tea Party, that you're all familiar with, where several cargo — a lot of cargo, I think it was about 350 kind of cargo containers of tea were dumped overboard by people from Massachusetts who were looking like they were Indians, but they were not. And as a result of that, the British got warned people in Concord and Lexington that the regulars, not the British, because everybody was British, they called them the regulars, the regulars were coming. And while Paul Revere didn't really complete his voyage, ultimately the Lexington and Concord towns were notified that British or regulars were coming. Paul Revere did tell John Hancock and Samuel Adams that the regulars were coming and they did escape. But what happened was there was some shooting that occurred in Concord and Lexington and initially eight US citizens — they weren't US but American colony people from Massachusetts were killed and then more and more shooting began. The militias began to shoot at the British as they were retreating back to Boston and then several hundred people were killed. 300 British troops were killed and were injured and so that became what was later called the shot heard round the world. And then for the first time people said, "Maybe we shouldn't stay as part of this country or part of England. We should make our own country." And then a British guy who was not really an American citizen basically came up with the concept of Common Sense. Common Sense was a pamphlet written by Thomas Paine, came out in January of 1776 and it sold more copies than any book had ever sold or any pamphlet ever sold in the United States. And he basically said, "You Americans, you ought to separate. You ought to become independent." And so more and more the concept took hold that maybe we should be independent. Though John Adams would say at the time about a third of Americans maybe wanted to be independent, a third basically wanted to stay as British and a third didn't care. They just wanted to be whoever the winner was. And so ultimately there was a second Continental Congress in Philadelphia. And at the second Continental Congress John Adams who was the leader, the intellectual leader of the Congress, said, "We need to be prepared to break away and we should have all of the delegates to the second Continental Congress go back to their colonies, get permission to vote for independence because we don't have a resolution proposed by Richard Henry Lee of Virginia to vote for independence." And the colonies representatives went back to their states, their colonies, and tried to get legislatures to either be started or got the existing legislature to give them permission to vote for independence. While this was going on John Adams said, "We have to have somebody explain why we're going to break away if we vote to break away." And so they put a committee together to explain why they were going to break away. And this committee had pretty impressive people on it. Benjamin Franklin was on it. He was a very very old, considered too old to actually maybe do very much. He was 70. A teenager by today's standards. John Adams was on it. Also Robert Livingston from New York who later swore George Washington in as the first president of the United States. And then Roger Sherman of Connecticut who was the person who when the Constitutional Convention was being put together, it was he who came up with the famous Connecticut Compromise that said we'll have two chambers of the legislature, one will be on proportion to population, one will have equal numbers. That was his idea, Roger Sherman. And then there was a young man who was also on it named Thomas Jefferson. Thomas Jefferson was 33 years old. He's put on this committee. He didn't want to be there, his wife was ill, he wanted to go back, but every other delegate from Virginia had left so they kind of said you had to stay. And so this five-person committee was given the task of explaining why we're going to be independent if we have the vote for independence. So what happened? Well, like most humans, he waited till the last minute. He had about 17 days to write up the draft and in the last three days he actually sat down and wrote it. And what he wrote was more or less plagiarism of what had already been written by other people because in those days it was considered an honor to plagiarize from other people. So he took things that he had written before, that George Mason had written before, that John Locke had written, and he more or less put it together in this document that we now call the Declaration of Independence. And on June the 28th he delivered it to John Adams and Benjamin Franklin who modestly edited it. They knew he was very sensitive so they didn't edit it very much. And then when the delegates came back they started voting on the resolution on July the 2nd. And they voted to actually break away on July the 2nd, 1776. John Adams wrote to his wife Abigail, "This will be the day we celebrate forever, July the 2nd." Why July the 2nd? Because this is the day we voted to be independent. And that's the most significant thing John Adams would say. And later that night on July the 2nd they took up the document that Thomas Jefferson had drafted. And they debated it the night of the 2nd, all day on the 3rd, all day on the 4th. They made roughly 78 changes to the document Thomas Jefferson had drafted. He was so upset, he never said anything. He didn't like to make public speeches. He only made one public speech as president of the United States. He didn't like to talk in public. He sat there mute but very very much upset. In fact, he was so upset that when the document was finally edited by the Continental Congress he started writing letters to his friends saying, "Here's my draft. This is what they did. Don't you think my draft is better than what they did?" Not unlike anybody else, he was very upset. And what happened was he had written a document that they changed to make 80 changes in his document, 80 different changes. And particularly the most important change they made was they took out his blaming King George for the slave trade because most of the people in the second Continental Congress were slave owners, even those from the north. John Adams was not but a lot of people in the north were slave owners and they didn't want to deal with slavery. In fact, as you know, the Declaration of Independence never mentioned slavery nor does the Constitution. That was taken out. And ultimately when it was done, the night of July the 4th, they finished it, they went next door to a printer, a young man 29 years old and his name was John Dunlap and he was asked to print up what they had agreed to and he printed it up on one page, it's called a broadside, one page broadside. They printed up 200 copies and they sent one copy to George Washington to read to the troops. They sent another copy to King George to make sure he understood what was going on and then they sent them to other colonies and so forth. Of these 200 copies about 25 are left. And one of them was discovered a few years ago in the back of a painting that was found in an attic. And in the back of the painting what somebody discovered if they bought the painting that this Declaration of Independence was there and it was ultimately sold by Sotheby's, bought by Norman Lear. And Norman Lear toured it around the whole country saying, "This is the birth certificate of our country." And eventually after he did that, he put it up for sale. One day he called me and said, "David, did you buy this document?" I said, "No, it wasn't offered to me." He said, "Well, Sotheby's was going to sell it in an auction but then they did a private sale but I don't know who they sold it to." A couple days later I went to somebody's house and I saw this perfect copy and I knew it was the one that Norman Lear had owned. And I asked the owner of the house, I said, "Did you buy this and put it in your personal library?" He said, "No, no, I wouldn't spend $25 million, that's what it cost. I didn't do that." But then the next day he emailed me and said, "I forgot I did buy it. It's Bill Gates' and it's his personal library." So what happened was the document that Thomas Jefferson drafted had three parts. The preamble, which nobody paid attention to. It had the sins of King George. There were ultimately initially there were about 20 of them down to 18 and then what we're going to do about it, break away. And nobody paid that much attention to the preamble. But the reason we celebrate the 4th of July when it was agreed to now was for two reasons but the most important is the one I'll tell you in about a minute. And it's because there's a sentence in there that Walter Isaacson has written about in a book recently calling it the greatest sentence ever written. There's a sentence in the preamble that says, "We hold these truths to be self-evident that all men are created equal, that they're endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness." It wasn't paid that much attention to at the time and the British actually made fun of that sentence because they said, "How can you say all men are created equal when you have slavery in the United States?" Thomas Jefferson wrote that actually believing that all men when they're created in nature are equal but he didn't say all women. Now why is that sentence so famous? Because it ultimately became the creed of our country. Even though we had slavery, even though we didn't let women have equal rights or right to vote, eventually this became the symbol of the country, the creed of the country that we believe everybody should have equal opportunity, equal rights, and while we've been trying to live up to that for many years and we haven't, other countries around the world when they wanted to start a revolution and overthrow their governments, very often they would cite this language and say, "This is what's in the American Declaration of Independence, all people should be equal." And that's why we really celebrate the 4th of July rather than the 2nd of July. And there's another factor too I should have mentioned. On the 2nd of July 1777 when they should have celebrated what John Adams said was the most important date in our country's history, they forgot. They were so busy in the Continental Congress working on so many things that they forgot it was July the 2nd till the end of the day. So then they realized we have to celebrate so they got organized and they finally celebrated on July the 4th. And but for the ensuing 50 years Thomas Jefferson kind of thought that July the 4th was more important because he had drafted the Declaration of Independence. And John Adams thought it was July the 2nd was more important because he had really authored the resolution that would say we'd be independent. And these two gentlemen who were the stars probably of the second Continental Congress, they sparred more or less for 50 years. And then as probably everybody knows, on his deathbed John Adams said on July the 4th, 1826, "Thomas Jefferson still lives." But Thomas Jefferson had died 1 hour earlier. And people took this as a sign of providence that these two great leaders died on the same day, 50 years to the day that they had agreed to the Declaration of Independence and they both died, you know, 50 years later on July the 4th. So, the document that was agreed to that Bill Gates bought, what actually happened was this. That wasn't signed by anybody. That wasn't signed. Remember, signing these things is treason. And so, they weren't afraid of it, but they weren't jumping to sign it right away. So, actually New York State wasn't there on the 4th of July because they were being invaded. So, what actually happened is they told all the delegates, "Come back here on August the 2nd. By then we'll have a calligrapher write it up in very nice handwriting and it'll be on parchment and it'll live forever." And so, the delegates came back on August 2nd and most of them signed it then. The biggest signature is John Hancock's, of course, and then everybody else signed it. 56 others were signing it and that document was treated poorly. It was put in sunlight for a while, folded up. When the British invaded in 1814, it had to be hidden and it was taken, it was treated very poorly. And eventually, John Quincy Adams, the son of John Adams, when he was Secretary of State, John Quincy Adams said, "We're not going to have anything that people can see that was actually signed because it's fading. So, why don't we have a perfect copy made so everybody can have one and we'll have copies made." And so, in 1823, John Quincy Adams got a printer in Washington D.C., William Stone, to come up with a process to make a perfect copy of the signed copy of the Declaration of Independence. That perfect copy, they made 200 of them. There are about maybe 40 or 50 of them left. I own a number of them that I put on display everywhere, none are in my house. And these are the ones, these copies are — when you see the New York Times or the Boston Globe printing a copy of the Declaration of Independence, what you're actually seeing is a copy of a stone copy because if you go to the National Archives, the original copy is faded beyond recognition, there's nothing there. But we're fortunate that John Quincy Adams did get copies made and we now have them and I'll show you one here and I'm going to give one of my replicas. I have replicas being made now. I'm giving one to every NBA owner, any NFL owner, every Major League Baseball owner and other business people and other people around the country so they can put them on display for this year in their stadiums, arenas or other offices. And I'll have one that can be on display here. And let me just show you what it looks like.
So, that's a stone copy and this is what was signed. And it was signed on August the 2nd. Actually, the names still weren't revealed until January. They were still — it was treason and remember, the war wasn't going so well in July and August. So, in January of the next year when the war was going a little bit better, the names were actually released at that time. But the reason this document is important is because it has that famous sentence in there and that is why we really celebrate the 4th of July and we're celebrating the 250th anniversary because of that sentence and because of what it means for humanity that all people should be treated equally. So, that's my little summary. I'm going to now go to the more important thing that you came for, which is Tracy. Let me just introduce Tracy and she'll make some brief remarks. So, you've all heard of — there's an advertising jingle that used to be on. I don't think it's on anymore. It says something like, "Nobody doesn't like Sara Lee." Well, what they actually meant to say was nobody doesn't like Tracy Palandjian because everybody likes her. I've known Tracy for a number of years at Harvard-related things and every time I see her, people say, "Do you know Tracy? She's so wonderful. She's so talented. She's so smart." And I said, "Well, yes, she is. I don't know how she does it, but she's very, very popular with everybody. She doesn't seem to have any enemies and she's actually very accomplished in many ways." Tracy has an unusual background for somebody on the Harvard Corporation. I think she's the only person on the Harvard Corporation who was born in Hong Kong. She came over to the United States as a student. Her father had been a student in the United States. He wanted his daughter to be a student here as well and she went to Milton Academy and then after Milton went to Harvard College and then she went to McKinsey, then went to Harvard Business School. And then from Harvard Business School, she then went into Wellington Asset Management and then later Parthenon, and then for a number of years later, she met some people who had done something very unique. We'll talk about it a little bit later, but she started a social impact company that has done wonders and it's a company called Social Finance, which Tracy has really started in the United States. It's grown, we're going to talk about it in our conversation, but Tracy has really done incredible things to enable a lot of people who have less privilege than some of us and some less wealth and less access to things that we have access to to be able to become more engaged in life in the United States, for which she deserves a great deal of credit. I've known Tracy for a number of years, admired her for many, many years and now I served for a couple years with her on the Harvard Corporation board, where she's now a leader and not surprisingly. And so, I'd like Tracy to give a little talk about why she started Social Finance, then she and I will have a conversation about it. Tracy.
Well, David, that was a very, very generous introduction and I do like, for the record, a slice of Sara Lee. So, this — I hope everyone is going to have a chance to come down and look at the Declaration. What a generous and fitting gift, David, not least to the EMK, an institution devoted to the ongoing work of democracy. Vicki, I don't know where you are, but Vicki and Bruce and Joe and the entire EMK team, thank you for stewarding this institution with such great care. And then Jim and Kathy, thank you for your friendship and for creating the space, this forum, where serious ideas around impact can be debated. We had a history lesson from David and as you look at this Declaration of Independence, it's a powerful reminder that the entire American experiment started as an act of faith written in ink and it's up to us to carry it forward in practice. And as we approach the 250th — and I'm going to try to say semiquincentennial — see, you are giving a history lesson, now you got to give me a pronunciation lesson. Semiquincentennial. It really feels like the right moment to reflect on the ideas that set this country in motion and to simply ask, how are we doing and how are we delivering on the promise of the American dream? As David mentioned, I didn't grow up in this country, so I come to this conversation as someone who arrived here as a foreign student from Hong Kong in the 1980s, an outsider who chose to live in this country, to build a life here and to become an American. So, I definitely don't take it lightly to be having this conversation in this room and not least in this moment. At the founding of this country were two powerful beliefs: that people could shape their own futures and that free markets, paired with strong institutions, could organize human initiative productively. Those convictions converge in a remarkable year in 1776. That year, Americans declared independence and also Adam Smith, across the pond, published The Wealth of Nations. Two documents published the same year, two ideas affirming human agency, one political and one economic, but together shaping a society built on freedom and opportunity. And 250 years later, those principles still shape our economy and our democracy. Markets rely on participation, people willing to work, people to invest, people to take risks and to build. Democracies rely on legitimacy, people believing that the system gives them a fair chance to succeed. And at the heart of both is economic opportunity. In its simplest form, what does economic opportunity mean? It means having a steady income, the ability to weather a setback and a real chance to build wealth, to buy a home, to build a business. By that measure, how is America doing? Today, income and wealth inequality are at levels not seen since the Gilded Age. The American dream, the idea that each generation will do better than the last, is increasingly in doubt. For those of you born in this room in the 1940s and 50s, roughly 90% of your generation earned more than your parents. You lived that experience. For those born in the 1980s sitting here tonight, people in your 40s, your odds are now around a coin flip. And when half of American households are one expected expense away from financial crisis, when your car breaks down, when a medical bill shows up and that throws the family into distress, that is not a resilient economy. It's a brittle one. 15 years ago, my two co-founders and I started Social Finance with a question. Could the tools of capitalism be used to address some of the challenges that capitalism has helped create? Social Finance is a 501c3 nonprofit. We're also an SEC-registered investment advisor. That unusual combination is intentional. We believe in the power of markets and we believe that that power can be directed to expand opportunity by bringing capital to places that traditional capital markets have not reached. Our organization's name is also the name of our approach, Social Finance with a small S and a small F. It means using financial tools deliberately to achieve measurable outcomes for people. We structure capital to address market gaps in workforce training and rural economic development, in areas like home ownership and employee ownership, where traditional markets don't reach low-income families and workers. In many ways, our work draws on two traditions that have long defined this country. The instinct to build and the instinct to give. We have the deepest capital markets in the world and we have a deep culture of extraordinary generosity. Americans donated $600 billion last year and more than two trillion sit in private foundations and donor advised funds already set aside for the public good. And yet, neither tradition on its own is enough to meet the scale of the challenges we face. Traditional philanthropy, in financial terms, it's negative 100%. Traditional philanthropy cannot do it alone. And traditional capital markets often overlook promising solutions because the time horizons are too long, the risks are too high, and the returns simply fall outside a conventional investment profile. Between those two systems lie an opportunity, a way to use capital for impact that doesn't have to be spent once and gone. Traditionally, people think about money in two wallets, one that they invest from and one that they give from. We're opening a third, a wallet for impact where capital can come back and work again. Just as an investment portfolio compounds return, the third wallet compounds impact. Let me bring it to life by sharing a couple of examples funded out of the third wallet. Helping a worker retrain for a new career through a zero-interest forgivable loan so that the path forward doesn't begin with debt. Financing child care centers in neighborhoods where none existed so parents can return to work while creating jobs. Providing small affordable loans to women entrepreneurs so that she can open a business and hire her first employee. Helping hourly workers become owners of the businesses that they power. These are landscapers, construction workers, so that they can build wealth and share in the success that they helped create. Converting predatory land contracts into fair mortgages, allowing families to finally hold title to their home. And I can go on and on. And these are not hypothetical models. They are real and we know that they're working. And unlike a traditional grant, the capital that funds them can come back to be redeployed for the next worker, the next student, the next entrepreneur. In that sense, Social Finance is not just a new investment strategy. It's a reimagining of philanthropy, a way to make each dollar go further. This is not a one-size-fits-all approach. Some challenges will always be better suited to traditional philanthropy. Think humanitarian relief, think civic institutions like this one, basic research. But where financial tools can drive outcomes, the potential is powerful to give in a way that gives again. This is the work that we're trying to do. New models to invest in opportunity, adding that third wallet alongside the other two. In a sense, that's what connects Adam Smith to a woman opening her first storefront and what connects the Declaration to a family holding the deed to their home. At its core, this work is about expanding economic opportunity so that more people have a meaningful stake in the economy, a genuine chance to build a life and to experience what we've long called the American dream. I don't like to typically read speeches, but I wanted to tie my remarks to David's generosity when he told me that he was gifting the Declaration. It feels like everything was converging together, but now we're going to have fun and we're going to have a fun conversation. So I'm going to invite David to join me in the front in the chairs.
Okay, so let me ask you, before we get into the social impact bond and nature of social impact investing, when your parents said to you, "You're going to go to the United States for high school," what did you say? Did you say, "I want to leave Hong Kong and come to Boston because the weather's better"? What did you say?
You got the story wrong, David. They didn't want me to come to the United States. My father, as you mentioned in the generous introduction, came here to go to college. He went to University of Michigan from Hong Kong in the 1950s. I hear claps. And I knew I would eventually end up here for college, but I said, "Why not earlier?" So maybe I had a fairly independent streak.
You picked Milton? How did you pick Milton?
Why did I pick Milton? Well, I applied to a range of schools in the Northeast. In Hong Kong, people, if you were to go away for high school, you either go to the UK or you come to the United States. So I was doing independent research without the knowledge of my parents and you would mail out for these brochures. This is, you know, obviously no online business back then. And I would get a range of brochures and I would apply to these schools blind and Milton was one of them. And when I got into all these schools, I had to break it to my parents that I had applied and that I wanted to go. And my father said, "You can go to the institution that's closest to a major international airport." Which was Milton Academy, which is 10 minutes south of here.
All right, so you went to Milton. How many people in your class were from Hong Kong?
Back in the day, maybe you can count on one hand. China and Hong Kong, something like that.
So you went to Milton and I assume you did well, so you got into Harvard. Was Harvard the only place you wanted to apply or is that the only place you applied to?
I mean, it was, as they say, a big reach. You know, like...
Back in the day, they would give you these categories. I mean, I was a decent student at Milton. I was good at math. I was not good at the piano. So they definitely didn't take me on my musical stuff, but Harvard had this mythical global reputation, right? It was a big deal and, you know, I would take the T and come into Harvard Square and eat at Pinocchio's and watch movies on Church Street Theater. So I wanted to try to apply and come. And I applied early and was very lucky to get in.
So, the person who approved your getting in, Bill Fitzsimmons, is still the Dean of Admissions at Harvard, right?
He still is the Dean of Admissions at Harvard, and yes, I was very lucky that he picked me out from the pile.
Okay, and so I guess you did okay at Harvard College. And what did you do right afterwards?
Well, my father, after he graduated from the University of Michigan, went back to Hong Kong, and I wanted a very different future for myself. Harvard was a very, very special place to me. It changed my life. It was more than an education. Yeah, I'll just mention two personal things. One is I met my husband there. He's sitting over there. So he has something to do with it.
Okay. He's a Harvard College, Harvard Medical School graduate.
He is indeed a Harvard Medical School and Harvard College graduate. But the other thing which also happened to me that made Harvard really a very special place for me is that my father passed away my freshman year in college and I began to spend much more time in this country after that. We were extremely close and it just felt like my whole world fell apart. But the institution and the community rallied around me. So for me, Harvard is more than an education. It really carried me through an important time.
What class were you at Harvard? So who became, other than you, the most famous person in your class?
1993, Gina Raimondo, who remains a dear friend of mine.
Okay. I think she might be the most famous person. Okay. And the happiest person in your class is obviously you, right? You're always happy, right? You're always smiling, so you must be very happy. You didn't get the unhappy gene that I have, right? You're a happy person. You're an optimist. That I know. All right. So, when you finished Harvard Business School, you decided to go into the business world at some point or not?
Well, where I was going to go with your earlier question is that I was committed to staying in this country. My parents wanted—well, my father had passed, but my mother and the extended family really wanted me to go back. But I wanted to stay in this country.
How many siblings do you have?
I have two younger brothers who also came here to go to Milton Academy. They actually went to another school before Milton Academy, a pre-boarding school, and then they stayed here for college, and my two younger brothers went back. So, I'm the only one here.
Okay. And did they go to Harvard also?
They went down the street to MIT and to Brown.
Okay. So, you look down on them or something like that?
Exactly, right? The older sister.
All right. So, you go to Harvard Business School, and Harvard Business School, presumably most people who go there want to go into business. Not everybody, but did you want to go into the for-profit business world by going to Harvard Business School?
Well, I worked at McKinsey, as you mentioned, after college, and it was like the conventional path. I grew up in a traditional Chinese household. You're supposed to study, get good grades, go to a good college, work at a good firm, and continue on to the next great educational institution. So, I was just kind of like on autopilot. And I arrived at HBS, and it was like the go-go days of the internet years, and people were starting internet companies. This is the mid-90s. And Leon and I had just gotten married. And I had done community service all my years at Milton, and started exploring at HBS this kind of early burgeoning field of social enterprise. And I actually spent a summer working in a nonprofit between my first and second year of business school. But then there weren't that many great jobs available, and at the end of the day, it's always about the people and the quality of people you work with. So, I went into asset management and worked at Wellington.
Okay. So, when you go to Harvard Business School, and you go in the for-profit world, I presume your mother was very happy you're in a successful, money-making operation. And what led you to want to get out of that merry-go-round of making money to go into the nonprofit world, or the modest profit world, I'll say it. What propelled you to want to do that?
Life is unusual, right? So, after Wellington, I went back to Parthenon, where I built the nonprofit practice. And I wasn't really thinking about being an entrepreneur. I'd never thought I had the entrepreneurial gene, but I was beginning to think about, 'Okay, I've now spent time in consulting. I've spent time in asset management. I've begun to work with a whole range of extraordinary leaders in the nonprofit world and civil society at large. How can I combine these worlds in a way that's meaningful?' And I would be so lucky to meet my co-founders probably around 20 years ago at this point. And they were David Blood.
David Blood and Ronald Cohen. I met Ronnie first. Okay. And they had started something in England that was somewhat similar to what you might have had in mind. What was that that they did in England?
Yeah. So, Ronnie had just retired from Apax, so your kind of private equity brethren, and he was very focused on thinking about developing the social investing sector in the UK. David Blood, whom you also know, David, started Generation Investment Management with Al Gore, and that was like the early days of sustainable investments, right? And they were asking a different question. They were asking, 'How do you enlist the capital markets to think about impact? How do you measure impact and make sure that investments from the long-only world and the private asset classes can produce impact?' And so, they started an organization called Social Finance in the UK, which developed the first social impact bond.
And David Blood's business partner, as you mentioned, was Al Gore, and the firm was known as Blood and Gore, right?
Exactly. They bypassed that name.
Right. All right. So, let's suppose I want to do a philanthropic thing, why don't I just write a check, give it to some organization? Why don't I want to go through a social impact investing mechanism? Because it's more complicated to produce a modest profit. Why don't I just write a check and get your tax deduction and go about your business?
That's an excellent question, David. Our social challenges are huge. You know that despite Americans being incredibly generous, right? We gave away $600 billion last year. Our social challenges are mounting, whether it's housing, whether it's job training, all of it. And the traditional philanthropic approach, which is minus 100%, simply isn't sufficient. It's not just the money. It's the power of the information feedback loop that you could get from an investment structure that you can come back. So, imagine giving the money instead of one time and gone, the money comes back, and then you can compound that impact over and over again. You can do so much more good.
Think about the ROI. All right. Let's talk about the ROI. If I go into a good Carlyle fund, I'm going to be getting a hopefully nice double-digit rate of return. But same with other comparable firms, okay? So, if I can get a double-digit rate of return, I'll make a fair amount of money, and I'll have more money to give away. If I give you money, I'm going to get a single-digit rate of return. And why should I be happier with a single-digit rate of return than a double-digit rate of return?
Because your benchmark is not Carlyle returns. Your benchmark is minus 100% in a traditional donation. Imagine a world where instead of having a bifurcated brain where I'm just going to use two wallets, back to the analogy, I'm going to maximize my for-profit activities to build my wealth so that I can make the world a better place by giving it away. Minus 100%. And you should continue to do the traditional philanthropy in places like patriotic philanthropy, civic institutions, like lots of great examples. But imagine having the space in between, that third wallet. Say you have a standing allocation of giving away 5%, putting 10% in the third wallet, what we call impact-first investing, and the money comes back to you, single digits, but then you redeploy and redeploy and get impact over and over again. Your cumulative impact over time would be far greater than just making two decisions.
Explain to me how I get any money back under your system because there's a Harvard Business School case study written about it, but I don't think everybody's probably read that case study yet. So, why don't you explain how you can get a single-digit rate of return, and how the money comes back, and you can reinvest it again. Can you explain that?
I'll give a few examples, and these are very exciting examples. The fund that we most recently launched is called the Social Finance Impact First Fund. We've met some extraordinary entrepreneurs all around the country coming up with solutions that are so creative to drive impact, but is never going to attract Carlyle to write the check. Why? In order to pursue that impact, the risks are much higher, the time horizon to realize that impact is much longer, and you're not going to get your double-digit net IRR. What are some of the examples? I'll give a few. Number one, I mentioned predatory land contracts. We found an extraordinary entrepreneur that launched a strategy called Black Star. In the United States, there is a very pernicious form of home lending called contracts for deed. It's essentially like a mortgage with all the negative aspects of it and none of the upside. So, you have to keep up with your house, you have to pay taxes, you have to pay monthly interest payments, but you never hold title to your home until the very last day. Guess how large this market is in the United States, David.
$200 billion. It's a massive market. These are homes that are typically $75,000, but people still need the financing to buy that $75,000 trailer home. So, this entrepreneur is buying packages of these contracts for deed at a discount, working with the borrowers to season their payments and convert them into conventional mortgages, and listen to this, converting almost $70,000 per household in partial equity transfer, and then lowering the monthly payments by around 20% a month.
So, you can think about it in small business formation. You can—thank you. So, that's the first example.
Second example, lending money, microloans to entrepreneurs, to women in this case, who are starting their laundromat, their bodega, their nail salon. And the repayment rate for these small loans, $5,000, $7,000 loans, is 99%.
